Financial data for Joel de Paris, Inc., for last year follow: The company paid d

Question

Financial data for Joel de Paris, Inc., for last year follow:

   

The company paid dividends of $338,000 last year. The “Investment in Buisson, S.A.,” on the balance sheet represents an investment in the stock of another company.

Required:

1. Compute the company’s margin, turnover, and return on investment (ROI) for last year. (Round your answers to 1 decimal place.)

2. The board of directors of Joel de Paris, Inc., has set a minimum required rate of return of 21%. What was the company’s residual income last year?

Joel de Paris, Inc.
Balance Sheet Beginning
Balance Ending
Balance Assets Cash $ 134,000 $ 127,000 Accounts receivable 348,000 489,000 Inventory 574,000 470,000 Plant and equipment, net 854,000 864,000 Investment in Buisson, S.A. 392,000 434,000 Land (undeveloped) 247,000 251,000 Total assets $ 2,549,000 $ 2,635,000 Liabilities and Stockholders' Equity Accounts payable $ 371,000 $ 349,000 Long-term debt 1,003,000 1,003,000 Stockholders' equity 1,175,000 1,283,000 Total liabilities and stockholders' equity $ 2,549,000 $ 2,635,000

Explanation / Answer

Beginning operating assets=2549000-392000-247000= 1910000 Ending operating assets=2635000-434000-251000= 1950000 Average operating assets = (1910000+1950000)/2= 1930000 1 Margin = Net operating incom/Sales=772000/4825000= 16% Turnover = Sales/Average operating assets=4825000/1930000= 2.5 ROI = Margin*Turnover =16%*2.5= 40% 2 Residual income=772000-(1930000*21%)= 366700

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