Task:
Financial data for Joal de Paris Inc for last year is as follows (see below)
The company paid dividends of $15,000 last year. The "Investment in Buisson, SA on the balance sheet represents an investment in stock of another company.
1. Compute the company's margin, turnover, and ROI for last year.
2. The board of directors of Joel de paris has a set minimum required rate of return of 15%. What was the company's residual income last year?
Return on investment (ROI) and residual income
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Joel de Paris, Inc, |
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Balance Sheet |
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Beginning Balance |
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Ending Balance |
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Assets |
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| Cash |
$ 140,000 |
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$ 120,000 |
| Accounts receivable |
$ 450,000 |
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$ 530,000 |
| Inventory |
$ 320,000 |
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$ 380,000 |
| Plant and equipment, net |
$ 680,000 |
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$ 620,000 |
| Investment in Buisson, S.A. |
$ 250,000 |
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$ 280,000 |
| Land (undeveloped) |
$ 180,000 |
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$ 170,000 |
| Total Assets |
$ 2,020,000 |
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$ 2,100,000 |
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Liabilities |
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| Accounts payable |
$ 360,000 |
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$ 310,000 |
| Long-term debt |
$ 1,500,000 |
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$ 1,500,000 |
| Stockholders' equity |
$ 160,000 |
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$ 290,000 |
| Total liabilities and stockholders' equity |
$ 2,020,000 |
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$ 2,100,000 |
25% ROI
| Joel de Paris, Inc, |
| Income Statement |
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| Sales |
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$ 4,050,000 |
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| Operating expenses |
$ 3,645,000 |
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| Net operating income |
$ 405,000 |
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| Interest and taxes: |
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| Interest expense |
$ 150,000 |
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| Tax expense |
$ 110,000 |
$ 260,000 |
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| Net income |
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$ 145,000 |
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The company paid dividends last year $15,000
The Investment in Busisson, S.A. represents
an investment in another company