Check my work 2 Problem 11-15 Return on Investment (ROI) and Residual Income [LO

ID: 2532300 • Letter: C

Question

Check my work 2 Problem 11-15 Return on Investment (ROI) and Residual Income [LO11-1, LO11-2] Financial data for Joel de Paris, Inc., for last year follow: 20 points Joel de Paris, Inc Balance Sheet Beginning Balance Ending Balance eBook Print References Assets Cash Accounts receivable Inventory Plant and equipment, net Investment in Buisson, S.A Land (undeveloped) Total assets $128,000 130,000 484,000 471,000 795,000 429,000 250,000 $ 2,484,000 2,559,000 346,000 577,000 789,000 395,000 249,000 Liabilities and Stockholders' Equity Accounts payable Long-term debt Stockholders' equity Total 1iabilities and stockholders' equity $ 383,000 333,000 950,000 1.151,000 1,276,000 $2,484,000 $2,559,000 950,000

Explanation / Answer

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

Beginning Balances

Ending Balances

Cash

128000

130000

Accounts receivable

346000

484000

Inventory

577000

471000

Plant and equipment (net)

789000

795000

Total operating assets

1840000

1880000

Average operating assets = ($1840000 + $1880000) / 2

= $18,60,000

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

Margin = (Net operating income / Sales)*100

= ($8,03,520 / $5022000)*100

= 16%

Turnover =Sales / Average operating assets

= $5022000 / 1860000

= 2.70

ROI = Margin × Turnover= 16% x 2.7 = 43.2%

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

Net operating income $803520

Less : Minimum required return $279000

($1860000 x 15%)

Residual income $5,24,520

Average operating assets

$18,60,000

Margin

16%

Turnover

2.70

ROI

43.2%

Residual income

$5,24,520