Question

Financial data for Bridger Inc. for last year are as follows:

BRIDGER INC. Balance Sheet
	Ending Balance			Beginning Balance
Assets
Cash	$	163,000		$	158,000
Accounts receivable		470,000			330,000
Inventory		480,000			520,000
Plant and equipment, net		717,000			762,000
Investment in Brier Company		580,000			550,000
Land (undeveloped)		400,000			400,000
Total assets	$	2,810,000		$	2,720,000
Liabilities and Shareholders’ Equity
Accounts payable	$	340,000		$	380,000
Long-term debt		1,100,000			1,100,000
Shareholders’ equity		1,370,000			1,240,000
Total liabilities and shareholders’ equity	$	2,810,000		$	2,720,000

BRIDGER INC. Income Statement
Sales				$	4,320,000
Operating expenses					3,715,200
Operating income					604,800
Interest and taxes:
Interest expense	$	133,000
Tax expense		213,000			346,000
Net income				$	258,800

The company paid dividends of $130,800 last year. The “Investment in Brier Company” on the balance sheet represents an investment in the common shares of another company.
Required:
1.Compute the company’s margin, turnover, and ROI for last year. (Round your intermediate calculations and final answers to 1 decimal place.)

Margin - %?

Turnover-?

ROI - %?

2. The board of directors of Bridger Inc. has set a minimum required return of 19%. What was the company’s residual income last year?

Residual Income ?

Answer 1

1
Margin	Net operating income/Sales
Margin	604800/4320000
Margin	14.0%
Calculate operating assets
	Ending balance	Beginning balance
Cash	$163,000	$158,000
Accounts receivable	$470,000	$330,000
Inventory	$480,000	$520,000
Plant and equipment	$717,000	$762,000
Total operating assets	$1,830,000	$1,770,000
Average operating assets	(1830000+1770000)/2
Average operating assets	$1,800,000
Turnover	Sales/Average operating assets
Turnover	4320000/1800000
Turnover	2.4	times
ROI	Margin*Turnover
ROI	14%*2.4
ROI	33.6%
2
Calculate residual income
Operating income	$604,800
Less: Minimum required return	$342,000	19%*1800000
Residual income	$262,800