Homework SourseFinancial 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 $216,340 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 | $ | 127,000 | $ | 133,000 | ||
| Accounts receivable | 340,000 | 483,000 | ||||
| Inventory | 565,000 | 480,000 | ||||
| Plant and equipment, net | 878,000 | 854,000 | ||||
| Investment in Buisson, S.A. | 398,000 | 434,000 | ||||
| Land (undeveloped) | 254,000 | 251,000 | ||||
| Total assets | $ | 2,562,000 | $ | 2,635,000 | ||
| Liabilities and Stockholders\' Equity | ||||||
| Accounts payable | $ | 385,000 | $ | 347,000 | ||
| Long-term debt | 972,000 | 972,000 | ||||
| Stockholders\' equity | 1,205,000 | 1,316,000 | ||||
| Total liabilities and stockholders\' equity | $ | 2,562,000 | $ | 2,635,000 | ||
Solution
SOLUTION
1. Operating assets = Total assets - Investments - Land
Average operating assets = (Beginning operating assets + Ending operating assets) / 2
= ($1,910,000 + $1,950,000)/2
= $3,860,000/2 = $1,930,000
2. Margin = Net operating income / sales
= $652,340/ $5,018,000
= 13%
Turnover = Sales/ Average operating assets
= $5,018,000 / $1,930,000
= 2.6
ROI = Margin * Turnover
= 13% * 2.6
= 33.8%
3. Residual Income= Net operating income - Minimum required return on average operating assets
=$652,340 - (15% * $1,930,000)
=$652,340 -$289,500
= $362,840
| Particulars | Beginning ($) | Ending ($) |
| Total assets | 2,562,000 | 2,635,000 |
| Less:Investments | (398,000) | (434,000) |
| Less:Land | (254,000) | (251,000) |
| Operating assets | 1,910,000 | 1,950,000 |
