Financial data for Joel de Paris Inc for last year follow Th

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

The company paid dividends of $197,000 last year. The “Investment in Buisson, S.A.,” on the balance sheet represents an investment in the stock of another company. The company\'s minimum required rate of return of 15%.

Required:

1. Compute the company\'s average operating assets for last year.

2. Compute the company’s margin, turnover, and return on investment (ROI) for last year. (Round \"Margin\", \"Turnover\" and \"ROI\" to 2 decimal places.)

3. What was the company’s residual income last year?

Joel de Paris, Inc. Balance Sheet
	Beginning Balance		Ending Balance
Assets
Cash	$	135,000		$	128,000
Accounts receivable		345,000			472,000
Inventory		561,000			476,000
Plant and equipment, net		819,000			824,000
Investment in Buisson, S.A.		407,000			430,000
Land (undeveloped)		252,000			252,000
Total assets	$	2,519,000		$	2,582,000
Liabilities and Stockholders\' Equity
Accounts payable	$	381,000		$	345,000
Long-term debt		980,000			980,000
Stockholders\' equity		1,158,000			1,257,000
Total liabilities and stockholders\' equity	$	2,519,000		$	2,582,000

Solution

Answer:

1. Compute the company\'s average operating assets for last year.

Ending Balance

Beginning Balance

Cash

135,000

128,000

Accounts receivable

345,000

472,000

Inventory

561,000

476,000

Plant and equipment, net

819,000

824,000

Total Operating Assets

1,860,000

1,900,000

Average Operating Assets

=1860,000+1,900,000 /2

=3,760,000/2

=1,880,000

Average Operating Assets =1,880,000

________________________________________________________

2. Compute the company’s margin, turnover, and return on investment (ROI) for last year

Margin

= Net Operating Income / Net sales

=611,000 /4,700,000

=13%

Turnover

=Net sales / Average Operating Assets

=4,700,000/1,880,000

=2.5

ROI = Margin x Turnover

ROI =13% x 2.5

ROI=32.5%

____________________________________________________

3. What was the company’s residual income last year?

Net Operating Income

611,000

Minimum required return (15% x 1,880,000)

282000

Residual Income (296000-282000)

329000

Residual Income=$329,000

Average Operating Assets

1880000

Margin

13.00%

Turnover

2.5

ROI

32.50%

Residual Income

329000

	Ending Balance	Beginning Balance
Cash	135,000	128,000
Accounts receivable	345,000	472,000
Inventory	561,000	476,000
Plant and equipment, net	819,000	824,000
Total Operating Assets	1,860,000	1,900,000