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P10-2A Return on Investment (ROI) and Residual Income
Financial data for Joel de Paris, Inc., for last year follow:
Joel de Paris, Inc.
Balance Sheet
Beginning Balance Ending Balance
Assets
Cash 135,000 205,000
Accounts receivable 540,000 455,000
Inventory 360,000 310,000
Plant and equipment, net 585,000 610,000
Investment in Buisson, S.A. 270,000 245,000
Land (undeveloped) 190,000 180,000
Total assets $2,080,000 $2,005,000
Liabilities and Stockholders’ Equity
Accounts payable 285,000 370,000
Long-term debt 1,700,000 1,600,000
Stockholders’ equity 95,000 35,000
Total liabilities and stockholders’ equity $2,080,000 $2,005,000
Joel de Paris, Inc.
Income Statement
Sales 4,000,000
Operating expenses 3,680,000
Net operating income 320,000
Interest and taxes:
Interest expense 160,000
Tax expense 70,000 230,000
Net income $90,000
The company paid dividends of $30,000 last year. The “Investment in Buisson, S.A.” on the balance sheet represents an investment in the stock of another company.
Required:
1. Compute the company’s margin, turnover, and return on investment (ROI) for last year.(Round your answers to 2 decimal places.)
2. The board of directors of Joel de Paris, Inc., has set a minimum required rate of return of 19%. What was the company’s residual income last year?