Question

Chec Financial data for Joel de Paris, Inc., for last year follow: Joel de Paris, Inc. Balance Sheet Beginning Balance Ending Balance Assets Cash Accounts receivable Inventory Plant and equipment, net Investment in Buisson, S.A. Land (undeveloped) Total assets Liabilities and Stockholders' Equity Accounts payable Long-term debt Stockholders' equity Total liabilities and stockholders' equity $ 128,000 349.000 573,000 800,000 407,000 246,000 $ 2,503,000 $ 127,000 490.000 478,000 795.000 426,000 247,000 $2,563,000 383,000 1,017,000 1,103,000 ,503,000 $ 334.000 1.017.000 1,212,000 $2,563,000 Joel de Paris, Inc. Income Statement Sales Operating expenses Net operating income Interest and taxes: Interest expense $ 119,000 Tax expense 192,000 Net Income 311,000 212.600 The company paid dividends of $103,600 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%.

Answer 1

Average operating assets for the last year :- Particulars Total Assets Less: Investment in Buisson, S.A Less: Land(Undeveloped) Operating Assets Beginning balance 25,03,000 (4,07,000) (2,46,000) 18,50,000 Ending balance 25,63,000 (4,26,000) (2,47,000) 18,90,000 Average operating assets = (1850000+1890000)/2 Average operating assets = $ 1,870,000/. Margin is - (Operating Income / Revenue) Margin is = (523600/3740000) 100 Margin is = 14% Turnover is = (Net Sales / Average Operating Assets) Turnover is = (3740000/1870000) Turnover is = 2.00 Times ROI - (Margin x Turnover) ROI = (14%+2) ROI = 28% Residual Income :- Particulars Net Operating Income Less: Minimum required return (Average Operating assets * ROI) (1870000*28%) Residual Income Amount $ 5,23,600 (5,23,600)