Problem 9-15A Return on Investment (ROI) and Residual Income [LO9-1, LO9-2] The
ID: 2552249 • Letter: P
Question
Problem 9-15A Return on Investment (ROI) and Residual Income [LO9-1, LO9-2]
The company paid dividends of $430,640 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 20%. What was the company’s residual income last year?
Financial data for Joel de Paris, Inc., for last year follow:
Explanation / Answer
Beginning operating assets=2550000-395000-255000= $1900000 Ending operating assets=2620000-428000-252000= $1940000 Average operating assets=(1900000+1940000)/2=$1920000 1 Margin=Net operating income/Sales=848640/4992000= 17% Turnover=Sales/Average operating assets=4992000/1920000= 2.6 ROI=Margin*Turnover=17%*2.6= 44.2% 2 Residual income=848640-(1920000*20%)= $464640