Question

Financial data for Joel de Paris, Inc., for last year follow: Joel de Paris, Inc. Balance Sheet Beginning Balance Ending Balance Assets Cash $ 137,000 $ 139,000 Accounts receivable 345,000 489,000 Inventory 572,000 481,000 Plant and equipment, net 816,000 801,000 Investment in Buisson, S.A. 409,000 431,000 Land (undeveloped) 254,000 249,000 Total assets $ 2,533,000 $ 2,590,000 Liabilities and Stockholders' Equity Accounts payable $ 375,000 $ 338,000 Long-term debt 992,000 992,000 Stockholders' equity 1,166,000 1,260,000 Total liabilities and stockholders' equity $ 2,533,000 $ 2,590,000 Joel de Paris, Inc. Income Statement Sales $ 5,103,000 Operating expenses 4,286,520 Net operating income 816,480 Interest and taxes: Interest expense $ 127,000 Tax expense 210,000 337,000 Net income $ 479,480 The company paid dividends of $385,480 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? 1. Average operating assets 2. Margin % Turnover ROI % 3. Residual income

Answer 1

1
Beginning Operating assets	1870000	=2533000-409000-254000
Ending Operating assets	1910000	=2590000-431000-249000
Average Operating assets	1890000	=(1870000+1910000)/2
2
Margin = Net operating income/Sales
Turnover = Sales/Average Operating assets
ROI = Margin*Turnover
Margin	16.00%	=816480/5103000
Turnover	2.70	=5103000/1890000
ROI	43.20%	=16.00%*2.70
3
Net operating income	816480
Less: Minimum required return	283500	=1890000*15%
Residual Income	532980