Question

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 130,000 344,000 570,000 856,000 400,000 250,000 $ 2,550,000 $ 132,000 489,000 481,000 838,000 434,000 250,000 $ 2,624,000 $ 382,000 1,004,000 1,164,000 $ 2,550,000 $ 333,000 1,004,000 1,287,000 $2,624,000 Joel de Paris, Inc. Income Statement Sales Operating expenses Net operating income Interest and taxes: Interest expense $ 120,000 Tax expense 201,000 Net income $ 4,608,000 3,962,880 645,120 321,000 324,120 $ The company paid dividends of $201,120 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?

Answer 1

1
Beginning Operating assets	1900000	=2550000-400000-250000
Ending Operating assets	1940000	=2624000-434000-250000
Average Operating assets	1920000	=(1900000+1940000)/2
2
Margin = Net operating income/Sales
Turnover = Sales/Average Operating assets
ROI = Margin*Turnover
Margin	14.00%	=645120/4608000
Turnover	2.40	=4608000/1920000
ROI	33.60%	=14%*2.40
3
Net operating income	645120
Less: Minimum required return	288000	=1920000*15%
Residual Income	357120