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Company
A B C
Sales $360,000 $720,000 $620,000
Net operating income $49,000
Average operating assets $152,000 $145,000
Return on investment (ROI) 23 % 15 % %
Minimum required rate of return:
Percentage 13 % % 10 %
Dollar amount $46,000
Residual income $6,000

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Tod Thiel
Tod ThielLv2
28 Sep 2019

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EXERCISE 11-9 Return on Investment (ROI) and Residual Income Relations (L011-1, L011-2] A family friend has asked your help in analyzing the operations of three anonymous companies operating in the same service sector industry. Supply the missing data in the table below: Company $9,000,000 $ ? $3,000,000 18% $7,000,000 $ 280,000 $ ? 14% $4,500,000 $ ? $1,800,000 Net operating income ........... Average operating assets ............ Return on investment (ROI) ........... Minimum required rate of return: Percentage .......... Dollar amount .... Residual income ................... 16% $ 320,000 $ ? 15% $ ? $ 90,000

PROBLEM 11-15 Return on Investment (ROI) and Residual Income (L011-1, L011-2] Financial data for Joel de Paris, Inc., for last year follow: Joel de Paris, Inc. Balance Sheet Beginning Balance Ending Balance !! Assets Cash ............ $ 140,000 Accounts receivable ............. 450,000 Inventory 320,000 Plant and equipment, net .......... 680,000 Investment in Buisson, S.A. .......... 250,000 Land (undeveloped) ........... 180,000 Total assets ........... ......... $2,020,000 Liabilities and Stockholders' Equity Accounts payable .... $ 360,000 Long-term debt .......... .............. 1,500,000 Stockholders' equity 160,000 Total liabilities and stockholders' equity ......... $2,020,000 $ 120,000 530,000 380,000 620,000 280,000 170,000 $2,100,000 $ 310,000 1,500,000 290,000 $2,100,000 Joel de Paris, Inc. Income Statement $4,050,000 3,645,000 405,000 Sales .......... Operating expenses Net operating income .... Interest and taxes: Interest expense . Tax expense ............ Net Income ....... $150,000 110,000 260,000 $ 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. Required: 1. Compute the company's margin, turnover, and return on investment (ROI) for last year. 2. The board of directors of Joel de Paris, Inc., has set a minimum required rate of retum of 15%. What was the company's residual income last year?

EXERCISE 11-6 Contrasting Return on Investment (ROI) and Residual Income (L011-1, L011-2] Meiji Isetan Corp. of Japan has two regional divisions with headquarters in Osaka and Yokohama. Selected data on the two divisions follow: Division Osaka Sales ........ .............. Net operating income ........... Average operating assets ......... $3,000,000 $210,000 $1,000,000 Yokohama $9,000,000 $720,000 $4,000,000 Required: 1. For each division, compute the return on investment (ROI) in terms of margin and turnover. Where necessary, carry computations to two decimal places. 2. Assume that the company evaluates performance using residual income and that the mini- mum required rate of return for any division is 15%. Compute the residual income for each division. 3. Is Yokohama's greater amount of residual income an indication that it is better managed? Explain.

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