Question

AssetsCash $ 139,000 $ 131,000Accounts receivable 340,000 480,000Inventory 569,000 479,000Plant and equipment, net 782,000 780,000Investment in Buisson, S.A. 392,000 426,000Land (undeveloped) 253,000 247,000Total assets $ 2,475,000 $ 2,543,000Liabilities and Stockholders' EquityAccounts payable $ 383,000 $ 333,000Long-term debt 984,000 984,000Stockholders' equity 1,108,000 1,226,000Total liabilities and stockholders' equity $ 2,475,000 $ 2,543,000Joel de Paris, Inc.Income StatementSales $ 4,440,000Operating expenses 3,640,800Net operating income 799,200Interest and taxes:Interest expense $ 114,000Tax expense 192,000 306,000Net income $ 493,200The company paid dividends of $375,200 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. (Do not round intermediate calculations and round your final answers to 2 decimal places.)3. What was the company’s residual income last year?

Billings Company is a decentralized wholesaler with five autonomous divisions. The divisions are evaluated on the basis of ROI, with year-end bonuses given to the divisional managers who have the highest ROIs. Operating results for the company’s Office Products Division for this year are given below:Sales $ 21,500,000Variable expenses 13,565,000Contribution margin 7,935,000Fixed expenses 5,995,000Net operating income $ 1,940,000Divisional average operating assets $ 4,301,500The company had an overall return on investment (ROI) of 17.00% this year (considering all divisions). Next year the Office Products Division has an opportunity to add a new product line that would require an additional investment that would increase average operating assets by $2,313,700. The cost and revenue characteristics of the new product line per year would be:Sales $9,255,000Variable expenses 65% of salesFixed expenses $2,552,650Required:1. Compute the Office Products Division’s ROI for this year.2. Compute the Office Products Division’s ROI for the new product line by itself.3. Compute the Office Products Division’s ROI for next year assuming that it performs the same as this year and adds the new product line.4. If you were in Dell Havasi’s position, would you accept or reject the new product line?5. Why do you suppose headquarters is anxious for the Office Products Division to add the new product line?6. Suppose that the company’s minimum required rate of return on operating assets is 14% and that performance is evaluated using residual income.a. Compute the Office Products Division’s residual income for this year.b. Compute the Office Products Division’s residual income for the new product line by itself.c. Compute the Office Products Division’s residual income for next year assuming that it performs the same as this year and adds the new product line.d. Using the residual income approach, if you were in Dell Havasi’s position, would you accept or reject the new product

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