AT&T; 4G 1 * 86% 6:37 PM ezto.mheducation.com Financial data for Joel de Paris,

Question

AT&T; 4G 1 * 86% 6:37 PM ezto.mheducation.com Financial data for Joel de Paris, Inc., for last year follow: Joel de Paris, Inc. Balance Sheet Ending Assets $40.000120.000 Inventory Investiment in Buisson, S Total assets $2.020 000 2,100 000 Liabilities and Stockholders' Equity $ 360,000310.000 Total liablsies and stockholders equity Joel de Paris, Inc. Income Statement 4050,000 Operating expenses The company paid dividends of $15,000 last year. The Investment in Buisson, S.A 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 las Round your answers to 1 decimal place.) Magin Tumover 2. The board of directors of Joel de Paris, Inc., has set a minimum required rate of r of 15%. What was the company's residual income last year?

Explanation / Answer

Solution: 1. Margin 10% Turnover 2.5 times ROI 25% Working Notes: Computation of operating Assets Ending Balances Beginning Balances Cash 120,000 140,000 Accounts receivable 530,000 450,000 Inventory 380,000 320,000 Plant & equipment net 620,000 680,000 Total operating assets 1,650,000 1,590,000 Average operating assets = (Beginning + Ending)/2 =($1,650,000 + $1,590,000)/2 =$1,620,000 Margin = Net operating income /Sales = 405,000/4,050,000 =0.10 =10 % Turnover ratio = Sales/ Average operating assets =4,050,000/1,620,000 =2.5 times ROI (return on investment) = Margin x turnover = 10% x 2.5 =25% 2. Net operating income 405,000 Minimum required return 243,000 Residual income 162,000 Working Notes: Net operating income 405,000 Less: Minimum required return [Average operating assets x minimum required rate ] 243,000 [$1,620,000 x 15% ] Residual income 162,000 Please feel free to ask if anything about above solution in comment section of the question.

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