Question

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

Joel de Paris, Inc. Balance Sheet
	Beginning Balance			Ending Balance
Assets
Cash	$	139,000		$	139,000
Accounts receivable		344,000			479,000
Inventory		566,000			477,000
Plant and equipment, net		801,000			795,000
Investment in Buisson, S.A.		393,000			432,000
Land (undeveloped)		247,000			246,000
Total assets	$	2,490,000		$	2,568,000
Liabilities and Stockholders' Equity
Accounts payable	$	388,000		$	336,000
Long-term debt		951,000			951,000
Stockholders' equity		1,151,000			1,281,000
Total liabilities and stockholders' equity	$	2,490,000		$	2,568,000

Joel de Paris, Inc. Income Statement
Sales					$	4,488,000
Operating expenses						3,904,560
Net operating income						583,440
Interest and taxes:
Interest expense	$	126,000
Tax expense		193,000				319,000
Net income					$	264,440

The company paid dividends of $134,440 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?

Answer 1

1
Beginning Operating assets	1850000	=2490000-393000-247000
Ending Operating assets	1890000	=2568000-432000-246000
Average Operating assets	1870000	=(1850000+1890000)/2
2
Margin = Net operating income/Sales
Turnover = Sales/Average Operating assets
ROI = Margin*Turnover
Margin	13.00%	=583440/4488000
Turnover	2.40	=4488000/1870000
ROI	31.20%	=13%*2.40
3
Net operating income	583440
Less: Minimum required return	280500	=1870000*15%
Residual Income	302940