Question - Financial data for Redstone Company for last year appear below:
Redstone Company
Statements of Financial Position Beginning Balance Ending Balance Assets: Cash $ 341,000 $ 336,590 Accounts receivable 188,000 192,000 Inventory 260,000 251,000 Plant and equipment (net) 448,000 385,000 Investment in Balsam Company 315,000 257,000 Land (undeveloped) 301,000 301,000 Total assets $ 1,853,000 $ 1,722,590 Liabilities and owners' equity: Accounts payable $ 203,000 $ 206,000 Long-term debt 892,000 892,000 Owners' equity 758,000 624,590 Total liabilities and owners' equity $ 1,853,000 $ 1,722,590
Redstone Company
Income statement Sales $ 2,350,000 Less operating expenses 2,103,250 Net operating income 246,750 Less interest and taxes: Interest expense $ 99,200 Tax expense 78,960 178,160 Net income $ 68,590
The company paid dividends of $202,000 last year. The "Investment in Balsam Company" on the statement of financial position represents an investment in the stock of another company
Required:
a. Compute the company's margin, turnover, and return on investment for last year.
b. The Board of Directors of Redstone has set a minimum required return of 18%. What was the company's residual income last year?