Problem 12-5 Computing ROI and RI (L02 - CC4, 6) Financial data for Joel de Pari
ID: 2556409 • Letter: P
Question
Problem 12-5 Computing ROI and RI (L02 - CC4, 6) Financial data for Joel de Paris Inc. for last year follow: JOEL DE PARIS INC. Balance Sheet Ending Balance Beginning Balance Assets Cash Accounts receivable Inventory Plant and equipment, net Investment in Buisson, S.A. Land (undeveloped) $ 500,000 1,500,000 1,000,000 2,000,000 395,000 240,000 $ 750,000 1,750,000 1,000,000 1,500,000 360,000 260,000 Total assets $5,635,000 $5,620,000 Accounts payable Long-term debt Shareholders' equity Liabilities and Shareholders' Equity $ 947,200 3,788,800 899,000 $1,035,000 4,140,000 445,000 Total liabilities and shareholders' equity $5,635,000 $5,620,000Explanation / Answer
1.
Margin
=( Net operating income / Sales)
=( $ 13,00,000 / $ 65,00,000 )*100
= 20%
Turnover
= Sales / Average operating assets
= $ 65,00,000 / $ 50,00,000
= 1.30 Times
ROI
ROI =Margin×Turnover
= 20 % x 1.30
= 26 %
2.Residual Income = $ 2,50,000
Net operating income $ 13,00,000
Minimum required return ($ 50,00,000 x 21%) $ 10,50,000
Residual income $ 2,50,000
Calculation of average operating assets
Ending Bal Beginning Bal
Cash 500000 750000
Accounts Receivable 1500000 1750000
Inventory 1000000 1000000
Plant & Equipment 2000000 1500000
Total Operating Asset 50,00,000 50,00,000
Average operating assets = (5000000+5000000)/2 = 50,00,000
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