Question

Residual Income [LO10-1, LO10-2]

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

Joel de Paris, Inc. Balance Sheet
	Beginning Balance			Ending Balance
Assets
Cash	$	136,000		$	126,000
Accounts receivable		335,000			486,000
Inventory		561,000			479,000
Plant and equipment, net		838,000			819,000
Investment in Buisson, S.A.		398,000			433,000
Land (undeveloped)		247,000			250,000
Total assets	$	2,515,000		$	2,593,000
Liabilities and Stockholders' Equity
Accounts payable	$	375,000		$	330,000
Long-term debt		1,007,000			1,007,000
Stockholders' equity		1,133,000			1,256,000
Total liabilities and stockholders' equity	$	2,515,000		$	2,593,000

Joel de Paris, Inc. Income Statement
Sales					$	3,969,000
Operating expenses						3,333,960
Net operating income						635,040
Interest and taxes:
Interest expense	$	122,000
Tax expense		199,000				321,000
Net income					$	314,040

The company paid dividends of $191,040 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. (Do not round intermediate calculations and round your final answers to 2 decimal places.)

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

Answer 1