Question

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

Joel de Paris, Inc. Balance Sheet
	Beginning Balance			Ending Balance
Assets
Cash	$	139,000		$	138,000
Accounts receivable		344,000			478,000
Inventory		567,000			471,000
Plant and equipment, net		780,000			783,000
Investment in Buisson, S.A.		392,000			427,000
Land (undeveloped)		247,000			255,000
Total assets	$	2,469,000		$	2,552,000
Liabilities and Stockholders' Equity
Accounts payable	$	372,000		$	330,000
Long-term debt		995,000			995,000
Stockholders' equity		1,102,000			1,227,000
Total liabilities and stockholders' equity	$	2,469,000		$	2,552,000

Joel de Paris, Inc. Income Statement
Sales					$	4,255,000
Operating expenses						3,659,300
Net operating income						595,700
Interest and taxes:
Interest expense	$	125,000
Tax expense		200,000				325,000
Net income					$	270,700

The company paid dividends of $145,700 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

	Beginning balance	Ending balance
cash	139000	138000
Accounts receivable	344000	478000
Inventory	567000	471000
Plant and equipment, net	780000	783000
Operating assets	1830000	1870000

Note : Investments in Buisson, S.A. and land (undeveloped) are not an operating assets as they do not contribute to the operating activities of the company.

1.
Average operating assets = ( Beginning operating assets + Ending operating assets ) / 2 = ( 1830000 + 1870000 ) / 2 =	1850000
2.
Margin = Net operating income / Sales = 595700 / 4255000 =	14.00%
Turnover = Sales / Average operating assets = 4255000 / 1850000 =	2.30
Return on investment (ROI) = Net operating income / Average operating assets = 595700 / 1850000 =	32.20%
3.
Residual income = Net operating income - ( Minimum Required rate of return * Average operating assets ) = 595700 - ( 15% * 1850000 ) =	318200