Question

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

Joel de Paris, Inc. Balance Sheet
	Beginning Balance			Ending Balance
Assets
Cash	$	136,000		$	134,000
Accounts receivable		336,000			471,000
Inventory		573,000			484,000
Plant and equipment, net		785,000			781,000
Investment in Buisson, S.A.		392,000			431,000
Land (undeveloped)		254,000			252,000
Total assets	$	2,476,000		$	2,553,000
Liabilities and Stockholders' Equity
Accounts payable	$	382,000		$	349,000
Long-term debt		1,016,000			1,016,000
Stockholders' equity		1,078,000			1,188,000
Total liabilities and stockholders' equity	$	2,476,000		$	2,553,000

Joel de Paris, Inc. Income Statement
Sales					$	4,995,000
Operating expenses						4,345,650
Net operating income						649,350
Interest and taxes:
Interest expense	$	118,000
Tax expense		201,000				319,000
Net income					$	330,350

The company paid dividends of $220,350 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)	Margin = net operating income/sales
	Turnover = sales/average operating assets
	ROI          = margin * turnover
	average operating assets			1850000
	Margin		13.0%
	turnover		2.70
	ROI		35.1%
	total operating assets don't include investments in other companies or in undeveloped
	land
					ending	Beginning
					balances	balances
	Cash				134,000	136,000
	account receivable				471,000	336,000
	inventory				484,000	573,000
	plant and equipment,net				781,000	785,000
	total Assets				1,870,000	1,830,000
	Average operating assets = ( ending balances + beginning balances )/2
				(1830000+1870000)
				1850000
2)	Net operating income				649,350
	minimum required return				15%
	residual income				371850
	Residual income =net operating income - (average operating assets *min required return)