The company paid dividends of $354,840 last year. The “Investment in Buisson, S.
ID: 2467919 • Letter: T
Question
The company paid dividends of $354,840 last year. The “Investment in Buisson, S.A.,” on the balance sheet represents an investment in the stock of another company.
Compute the company’s margin, turnover, and return on investment (ROI) for last year. (Round your answers to 2 decimal places.)
The board of directors of Joel de Paris, Inc., has set a minimum required rate of return of 21%. What was the company’s residual income last year?
Explanation / Answer
1.
Average operating assets = ($1,890,000 + $1,850,000) / 2 = $1,870,000
Margine = Net operating income / Sales
Margine = $807,840 / $5,049,000 = 0.16 or 16%
Turnover = Sales / Average operating assets
Turnover = $5,049,000 / $1,870,000 = 2.7
Return on investment (ROI) = Margine * Turnover
ROI = 16*2.7 = 43.20%
2.
Net operating Income : $807,840
Minimum required return (21% * $1,870,000) : $392,700
Residual Income : $415,140
Ending Balances Beginning Balances Cash $126,000 $131,000 Accounts Receivable $479,000 $336,000 Inventory $471,000 $563,000 Plant and equipment (net) $814,000 $820,000 Total Operating Assets $1,890,000 $1,850,000