The company paid dividends of $513,440 last year. The “Investment in Buisson, S.

ID: 2526900 • Letter: T

Question

The company paid dividends of $513,440 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 Turnover answer to 1 decimal place. Round your Margin and ROI percentage answers to 1 decimal place (i.e 0.123 should be entered as 12.3.))

The board of directors of Joel de Paris, Inc., has set a minimum required rate of return of 17%. What was the company’s residual income last year?

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

Explanation / Answer

Average operating assets for last year.

Beginning Balances

Ending Balances

Cash

1,36,000

1,26,000

Accounts receivable

3,43,000

4,77,000

Inventory

5,65,000

4,84,000

Plant and equipment (net)

8,76,000

8,73,000

Total operating assets

19,20,000

19,60,000

Average operating assets = ($1920000 + $1960000) / 2

= $19,40,000

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

Margin = Net operating income / Sales

= ($923440 / $5432000)*100

= 17%

Turnover =Sales / Average operating assets

= $5432000 / $1940000

= 2.8

ROI = Margin × Turnover= 17% x 2.8 = 47.6%

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

Net operating income $9,23,440

Less : Minimum required return $3,29,800

($1940000 x 17%)

Residual income $5,93,640