Question

Financial data for Beaker Company for last year appear below:

Beaker Company
Statements of Financial Position
	Beginning Balance			Ending Balance
Assets:
Cash	$	346,000		$	324,792
Accounts receivable		202,000			159,000
Inventory		298,000			299,000
Plant and equipment (net)		463,000			455,000
Investment in Cedar Company		318,000			293,000
Land (undeveloped)		237,000			237,000
Total assets	$	1,864,000		$	1,767,792
Liabilities and owners' equity:
Accounts payable	$	249,000		$	228,000
Long-term debt		855,000			855,000
Owners' equity		760,000			684,792
Total liabilities and owners' equity	$	1,864,000		$	1,767,792

Beaker Company
Income Statement
Sales				$	1,790,000
Less operating expenses					1,440,950
Net operating income					349,050
Less interest and taxes:
Interest expense	$	98,600
Tax expense		125,658			224,258
Net income				$	124,792

The company paid dividends of $200,000 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 25%. What was the company's residual income last year?

Given the following data:

Average operating assets	$	1,080,000
Total liabilities	$	162,000
Sales	$	540,000
Contribution margin	$	297,000
Net operating income	$	86,400

Return on investment (ROI) is:

Multiple Choice

• 16.0%

• 8.0%

• 55.0%

• 27.5%

Answer 1

1)	Margin = net operating income/sales
	Turnover = sales/average operating assets
	ROI          = margin * turnover
	Margin		19.5%
	turnover		1.41
	ROI		27.4%
	total operating assets don't include investments in other companies or in undeveloped
	land
					ending	Beginning
					balances	balances
	Cash				324,792	346,000
	account receivable				159,000	202,000
	inventory				299,000	298,000
	plant and equipment,net				455,000	463,000
	total Assets				1,237,792	1,309,000
	Average operating assets = ( ending balances + beginning balances )/2
				(1237792/1309000)
				1273396
2)	Net operating income				349,050
	minimum required return				25%
	residual income				30701
	Residual income =net operating income - (average operating assets *min required return)
	Return on investment
	86400/1,080,000
	8%	answer