The company paid dividends of $326,400 last year. The “Investment in Buisson, S.

ID: 2526323 • Letter: T

Question

The company paid dividends of $326,400 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?

Joel de Paris, Inc.
Balance Sheet Beginning
Balance Ending
Balance Assets Cash $ 134,000 $ 137,000 Accounts receivable 334,000 481,000 Inventory 563,000 474,000 Plant and equipment, net 829,000 808,000 Investment in Buisson, S.A. 407,000 432,000 Land (undeveloped) 248,000 251,000 Total assets $ 2,515,000 $ 2,583,000 Liabilities and Stockholders' Equity Accounts payable $ 385,000 $ 339,000 Long-term debt 1,025,000 1,025,000 Stockholders' equity 1,105,000 1,219,000 Total liabilities and stockholders' equity $ 2,515,000 $ 2,583,000

Explanation / Answer

1. Compute the company's average operating assets for last year.

Beginning Balances

Ending Balances

Cash

1,34,000

1,37,000

Accounts receivable

3,34,000

4,81,000

Inventory

5,63,000

4,74,000

Plant and equipment (net)

8,29,000

8,08,000

Total operating assets

18,60,000

19,00,000

Average operating assets = ($18,60,000 + $19,00,000) / 2

= $18,80,000

2. Compute the company’s margin, turnover, and return on investment (ROI) for last year

Margin = Net operating income / Sales

= $7,61,400 / $50,76,000

= 15%

Turnover =Sales / Average operating assets

= $50,76,000 / $18,80,000

= 2.70

ROI = Margin × Turnover= 15% x 2.70

= 40.5%