Question

Problem 11-15 Return on Investment (ROI) and Residual Income [LO11-1, LO11-2]

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

Joel de Paris, Inc. Balance Sheet
	Beginning Balance			Ending Balance
Assets
Cash	$	135,000		$	136,000
Accounts receivable		333,000			489,000
Inventory		563,000			482,000
Plant and equipment, net		829,000			793,000
Investment in Buisson, S.A.		409,000			425,000
Land (undeveloped)		251,000			249,000
Total assets	$	2,520,000		$	2,574,000
Liabilities and Stockholders' Equity
Accounts payable	$	373,000		$	344,000
Long-term debt		1,039,000			1,039,000
Stockholders' equity		1,108,000			1,191,000
Total liabilities and stockholders' equity	$	2,520,000		$	2,574,000

Joel de Paris, Inc. Income Statement
Sales					$	4,136,000
Operating expenses						3,598,320
Net operating income						537,680
Interest and taxes:
Interest expense	$	117,000
Tax expense		207,000				324,000
Net income					$	213,680

The company paid dividends of $130,680 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?

	1. Average operating assets 2. Margin % Turnover ROI % 3. Residual income

Answer 1

1 computation of the operating assets for company's last year average Ending Balance $25,74,000 Ronce Balance Total Assets $25,20,000 Investment an BLASson, S.A un I nogooo) Operating assets $21, 11000 (425000) $21,449000 Average operating absety 101 = Beginning Balance + Ending Balance = $21, 11ooot $2149000 a $ 21,30,000 assie 2 2 2) company's margin = Net Income x 100 = $213 680 xbo $4136000 margin = 5.17.1.

rosaleb a Ternover egono . Turnover = $4136000 Retem on dovestment CROID ROL 1 Net ancouse AS dos x 100 Average operating assets s $ 213 680X100 $ 21, 30.000 Rol = 10.03 %. 3 Residual ancome - Net ancome - Target inconse = $ 213680 $21,30,000 X15-1. & $ 213 680 - $319500 S $ 105820

Average operating assets $21,30,000 margin 5.17 Turnover $4136000 ROL 10.037 3 Resadeal income -$105820