Problem 12-5 Computing ROI and RI (LO2 - CC4, 6) Financial data for Joel de Pari
ID: 2554775 • Letter: P
Question
Problem 12-5 Computing ROI and RI (LO2 - CC4, 6)
Financial data for Joel de Paris Inc. for last year follow: JOEL DE PARIS INC Balance Sheet Ending Beginning Balance Balance Assets Cash S 244,000 Inventory Plant and equipment, net Investment in Buisson, S.A. Land (undeveloped) 732,000 488,000 976,000 372,000 226,000 366,000 854,000 488,000 732,000 338,000 244,000 Total assets $3,038,000 $3,022,000 Liabilities and Shareholders' Equity Accounts payable Long-term debt Shareholders' equity S 541,400 2,165,600 331,000 556,600 2,226,400 239,000 Total liabilities and shareholders equity $3,038,000 $3,022,000 JOEL DE PARIS INC Income Statement Sales Less: Operating expenses $6,100,000 5,795,000 305,000 Net operating income Less: Interest and taxes: Interest expense Tax expense $112,000 82,000 194,000 Net income S 111,000 The company paid dividends of $19,000 last year. The "Investment in Buisson, S.A." on the balance sheet represents an investment in the shares of another company. Required: 1. Compute the company's margin, turnover, and ROI for last year. (Do not round intermediate calculations. Round your answers to 2 decimal place.) Margin Turnover ROIExplanation / Answer
Ending Bal Beginning Bal
Cash 244000 366000
Accounts Receivable 732000 854000
Inventory 488000 488000
Plant & Equipment 976000 732000
Total Operating Asset 24,40,000 24,40,000
Average operating assets = (2440000+2440000)/2 = 24,40,000
1.Margin
=( Net operating income / Sales)
=( $ 111000 / 6100000 )*100
= 1.82%
Turnover
= Sales / Average operating assets
= $ 61,00,000 / 24,40,000
= 2.50 Times
ROI
ROI =Margin×Turnover
= 1.82 * 2.5
= 4.55%
2.Residual Income = $ 61,000
Net operating income $ 3,05,000
Minimum required return (10% ×$ 24,40,000) 244,000
Residual income $ 61,000