Question

Listed below are the financials for Baecker HVAC Air Conditioning who service provides local HVAC services in Southern California. The data appears as follows:  

Baecker HVAC Company
Statements of Financial Position
	Beginning Balance			Ending Balance
Assets:
Cash	$	288,000		$	189,663
Accounts receivable		126,000			191,000
Inventory		264,000			286,000
Plant and equipment (net)		442,000			450,000
Investment in Cedar Company		243,000			262,000
Land (undeveloped)		458,000			458,000
Total assets	$	1,821,000		$	1,836,663
Liabilities and owners' equity:
Accounts payable	$	252,000		$	223,000
Long-term debt		841,000			841,000
Owners' equity		728,000			772,663
Total liabilities and owners' equity	$	1,821,000		$	1,836,663

Baecker HVAC Company
Income Statement
Sales				$	2,310,000
Less operating expenses					1,871,100
Net operating income					438,900
Less interest and taxes:
Interest expense	$	105,400
Tax expense		144,837			250,237
Net income				$	188,663

Information finds that Baecker paid dividends of $144,000 last year. The "Investment in Cedar Company" on the statement of Balance Sheet represents an investment in the stock of another company.

Required:

a. Compute the company's margin, turnover, and return on investment for last year.

b. The Board of Directors of Beaker Company has set a minimum required return of 35%. What was the company's residual income last year?

Answer 1