Question

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

Joel de Paris, Inc. Balance Sheet
	Beginning Balance		Ending Balance
Assets
Cash	$	128,000	$	129,000
Accounts receivable		332,000		475,000
Inventory		576,000		487,000
Plant and equipment, net		824,000		809,000
Investment in Buisson, S.A.		402,000		429,000
Land (undeveloped)		246,000		251,000
Total assets	$	2,508,000	$	2,580,000
Liabilities and Stockholders' Equity
Accounts payable	$	374,000	$	337,000
Long-term debt		975,000		975,000
Stockholders' equity		1,159,000		1,268,000
Total liabilities and stockholders' equity	$	2,508,000	$	2,580,000

   

Joel de Paris, Inc. Income Statement
Sales		$	4,888,000
Operating expenses			4,203,680
Net operating income			684,320
Interest and taxes:
Interest expense	124,000
Tax expense	203,000		327,000
Net income		$	357,320

The company paid dividends of $248,320 last year. The “Investment in Buisson, S.A.,” on 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 last year. (Round your answers to 1 decimal place.)

2. The board of directors of Joel de Paris, Inc., has set a minimum required rate of return of 15%. What was the company’s residual income last year?

Net operating income?

Minimum required return?

Residual income?

Answer 1

Beginning Operating assets	1860000	=2508000-402000-246000
Ending Operating assets	1900000	=2580000-429000-251000
Average Operating assets	1880000	=(1860000+1900000)/2
Margin = Net operating income/Sales
Turnover = Sales/Average Operating assets
ROI = Margin*Turnover
1
Margin	14.00%	=684320/4888000
Turnover	2.60	=4888000/1880000
ROI	36.40%	=14.00%*2.60
2
Net operating income	684320
Less: Minimum required return	282000	=1880000*15%
Residual Income	402320