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		$	132,000
Accounts receivable		342,000			487,000
Inventory		561,000			489,000
Plant and equipment, net		831,000			802,000
Investment in Buisson, S.A.		402,000			432,000
Land (undeveloped)		254,000			246,000
Total assets	$	2,526,000		$	2,588,000
Liabilities and Stockholders' Equity
Accounts payable	$	376,000		$	349,000
Long-term debt		1,002,000			1,002,000
Stockholders' equity		1,148,000			1,237,000
Total liabilities and stockholders' equity	$	2,526,000		$	2,588,000

Joel de Paris, Inc. Income Statement
Sales					$	5,103,000
Operating expenses						4,337,550
Net operating income						765,450
Interest and taxes:
Interest expense	$	114,000
Tax expense		202,000				316,000
Net income					$	449,450

The company paid dividends of $360,450 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			1890000
	Margin		15.0%
	turnover		2.70
	ROI		40.5%
	total operating assets don't include investments in other companies or in undeveloped
	land
					ending	Beginning
					balances	balances
	Cash				132,000	136,000
	account receivable				487,000	342,000
	inventory				489,000	561,000
	plant and equipment,net				802,000	831,000
	total Assets				1,910,000	1,870,000
	Average operating assets = ( ending balances + beginning balances )/2
				(1910000+1870000)/2
				1890000
2)	Net operating income				765,450
	minimum required return				15%
	residual income				481950
	Residual income =net operating income - (average operating assets *min required return)