PROBLEM 11-17 Return on Investment (ROI) and Residual Income LO11-1, LO11-2 Financial data for Joel de Paris, Inc., for last year follow: Joel de Paris, Inc. Balance Sheet Assets Cash Accounts receivable Inventory Plant and equipment, net Investment in Buisson, S.A. Land (undeveloped) Total assets Net income Liabilities and Stockholders' Equity Accounts payable $360,000 $ 310,000 Long-term debt 1,500,000 1,500,000 Stockholders' equity 160,000 290,000 Total liabilities and stockholders' equity $2,020,000 $2,100,000 Sales Operating expenses Net operating income Interest and taxes: Interest expense Tax expense Joel de Paris, Inc. Income Statement Beginning Ending Balance Balance $ 140,000 $120,000 450,000 530,000 320,000 380,000 680,000 620,000 250,000 280,000 180,000 170,000 $2,020,000 $2,100,000 4 $150,000 110,000 $4,050,000 3,645,000 405,000 260,000 $ 145,000 The company paid dividends of $15,000 last year. The "Investment in Buisson, S.A.." on the balance sheet represents an investment in the stock of another company. The company's minimum required rate of return of 15%. Required: 1. Compute the company's average operating assets for last year. Page 529 2. Compute the company's margin, turnover, and return on investment (ROI) for last year. (Hint: Should you use net income or net operating income in your calculations?) 3. What was the company's residual income last year?
PROBLEM 11-17 Return on Investment (ROI) and Residual Income LO11-1, LO11-2 Financial data for Joel de Paris, Inc., for last year follow: Joel de Paris, Inc. Balance Sheet Assets Cash Accounts receivable Inventory Plant and equipment, net Investment in Buisson, S.A. Land (undeveloped) Total assets Net income Liabilities and Stockholders' Equity Accounts payable $360,000 $ 310,000 Long-term debt 1,500,000 1,500,000 Stockholders' equity 160,000 290,000 Total liabilities and stockholders' equity $2,020,000 $2,100,000 Sales Operating expenses Net operating income Interest and taxes: Interest expense Tax expense Joel de Paris, Inc. Income Statement Beginning Ending Balance Balance $ 140,000 $120,000 450,000 530,000 320,000 380,000 680,000 620,000 250,000 280,000 180,000 170,000 $2,020,000 $2,100,000 4 $150,000 110,000 $4,050,000 3,645,000 405,000 260,000 $ 145,000 The company paid dividends of $15,000 last year. The "Investment in Buisson, S.A.." on the balance sheet represents an investment in the stock of another company. The company's minimum required rate of return of 15%. Required: 1. Compute the company's average operating assets for last year. Page 529 2. Compute the company's margin, turnover, and return on investment (ROI) for last year. (Hint: Should you use net income or net operating income in your calculations?) 3. What was the company's residual income last year?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:**PROBLEM 11-7: Return on Investment (ROI) and Residual Income**
**Financial data for Joel de Paris, Inc. for last year are as follows:**
### Joel de Paris, Inc. Balance Sheet
| Assets | Beginning Balance | Ending Balance |
|---------------------------------------|-------------------|----------------|
| Cash | $140,000 | $120,000 |
| Accounts receivable | $50,000 | $30,000 |
| Inventory | $320,000 | $380,000 |
| Plant and equipment, net | $680,000 | $620,000 |
| Investment in Buisson, S.A. | $250,000 | $280,000 |
| Land (undeveloped) | $180,000 | $170,000 |
| **Total assets** | **$2,020,000** | **$2,100,000** |
| | | |
| **Liabilities and Stockholders’ Equity** | | |
| Accounts payable | $360,000 | $310,000 |
| Long-term debt | $1,500,000 | $1,500,000 |
| Stockholders’ equity | $160,000 | $290,000 |
| **Total liabilities and stockholders’ equity** | **$2,020,000** | **$2,100,000** |
### Joel de Paris, Inc. Income Statement
| Item | Amount |
|-------------------------|--------------|
| Sales | $4,050,000 |
| Operating expenses | $3,645,000 |
| **Net operating income**| **$405,000** |
| | |
| **Interest and taxes:** | |
| Interest expense | $150,000 |
| Tax expense | $110,000 |
| **Net income** | **$145,000** |
**Additional information:**
- The company paid dividends of $15,000 last year.
- The "Investment in Buisson, S.A." on the balance sheet represents an investment in the stock of another company.
- The company’s minimum required rate of return is 15%.
**Required:**
1. Compute the company’s average operating assets for last year.
2
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