Question

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

Joel de Paris, Inc. Balance Sheet
	Beginning Balance			Ending Balance
Assets
Cash	$	127,000		$	127,000
Accounts receivable		339,000			473,000
Inventory		565,000			477,000
Plant and equipment, net		879,000			873,000
Investment in Buisson, S.A.		392,000			433,000
Land (undeveloped)		249,000			252,000
Total assets	$	2,551,000		$	2,635,000
Liabilities and Stockholders' Equity
Accounts payable	$	388,000		$	344,000
Long-term debt		1,030,000			1,030,000
Stockholders' equity		1,133,000			1,261,000
Total liabilities and stockholders' equity	$	2,551,000		$	2,635,000

Joel de Paris, Inc. Income Statement
Sales					$	3,860,000
Operating expenses						3,203,800
Net operating income						656,200
Interest and taxes:
Interest expense	$	117,000
Tax expense		200,000				317,000
Net income					$	339,200

The company paid dividends of $211,200 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. (Round "Margin", "Turnover" and "ROI" to 2 decimal places.)

3. What was the company’s residual income last year?

Answer 1

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1. Average Operating Assets
It does not include investment in other company or underdeveloped land
	Beginning	Ending
Cash	127000	127000
Accounts Receivable	339000	473000
Inventory	565000	477000
Plant and Equipment (Net)	879000	873000
Total Operating Assets	1910000	1950000
Average Operating Asset	(1910000+1950000)/2
Average Operating Asset	1930000
2. Margin
Net Operating Income/Sale	656200/3860000
Net Operating Income/Sale	17%
2. Turnover
Sales/Average Operating asset	3860000/1930000
Sales/Average Operating asset	2
2. ROI	Margin*Turnover
	2*17%
	34%
3. Residual Income
Net Operating Income	656200
Less: Minimum Required Return	-289500
(15%*1930000)
Residual Income	366700