Question

Financial data for Beaker Company for last year appear below:

Beaker Company
Statements of Financial Position
	Beginning Balance			Ending Balance
Assets:
Cash	$	260,000		$	217,450
Accounts receivable		157,000			149,000
Inventory		288,000			284,000
Plant and equipment (net)		496,000			450,000
Investment in Cedar Company		233,000			347,000
Land (undeveloped)		335,000			335,000
Total assets	$	1,769,000		$	1,782,450
Liabilities and owners' equity:
Accounts payable	$	213,000		$	171,000
Long-term debt		803,000			803,000
Owners' equity		753,000			808,450
Total liabilities and owners' equity	$	1,769,000		$	1,782,450

Beaker Company
Income Statement
Sales				$	2,500,000
Less operating expenses					1,925,000
Net operating income					575,000
Less interest and taxes:
Interest expense	$	96,300
Tax expense		224,250			320,550
Net income				$	254,450

The company paid dividends of $199,000 last year. The "Investment in Cedar Company" on the statement of financial position represents an investment in the stock of another company.

Required:

a. Compute the company's margin, turnover, and return on investment for last year.

b. The Board of Directors of Beaker Company has set a minimum required return of 45%. What was the company's residual income last year?

Answer 1