Selected sales and operating data for three divisions of different structural engineering firms are given as follows: Division A Division B Division C Sales $11,500,000 $13,500,000 $24,500,000 Average operating assets $2,875,000 $5,400,000 $4,375,000 Net operating income $517,500 $472,500 $661,500 Minimum required rate of return 14% 12% 14%

Selected sales and operating data for three divisions of different structural engineering firms are given as follows:

 

	Division A	Division B	Division C
Sales	$11,500,000	$13,500,000	$24,500,000
Average operating assets	$2,875,000	$5,400,000	$4,375,000
Net operating income	$517,500	$472,500	$661,500
Minimum required rate of return	14%	12%	14%

	Division A	Division B	Division C
Average operating assets	$2,875,000	$5,400,000	$4,375,000
Required rate of return	×14%	×12%	×14%
Minimum required return	$402,500	$648,000	$612,500
Actual net operating income	$517,500	$472,500	$661,500
Minimum required return (above)	18	648,000	612,500
Residual income	$115,000	$(175,500)	$49,000

Financial data for Bridger, Inc., for last year are as follows:

Problem 11-18 Return on Investment (ROI) and Residual Income [LO1, LO2]

Financial data for Bridger, Inc., for last year are as follows:

Bridger, Inc. Balance Sheet
	Beginning Balance		Ending Balance
Assets
Cash	$	125,000	$	130,000
Accounts receivable		340,000		480,000
Inventory		570,000		490,000
Plant and equipment, net		845,000		820,000
Investment in Brier Company		400,000		430,000
Land (undeveloped)		250,000		250,000
Total assets	$	2,530,000	$	2,600,000
Liabilities and Stockholders' Equity
Accounts payable	$	380,000	$	340,000
Long-term debt		1,000,000		1,000,000
Stockholders' equity		1,150,000		1,260,000
Total liabilities and stockholders' equity	$	2,530,000	$	2,600,000

Bridger, Inc. Income Statement
Sales		$	4,180,000
Operating expenses			3,553,000
Net operating income			627,000
Interest and taxes:
Interest expense	$ 120,000
Tax expense	200,000		320,000
Net income		$	307,000

The company paid dividends of $197,000 last year. The “Investment in Brier Company” 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 the "Turnover" to 2 decimal places. Omit the "%" sign in your response.)

Margin	%
Turnover
ROI	%

2.	The board of directors of Bridger, Inc., has set a minimum required return of 20%. What was the company’s residual income last year? (Omit the "$" sign in your response.)

Residual income

$

Explanation: 1.

Operating assets do not include investments in other companies or in undeveloped land.

	Ending Balances		Beginning  Balances
Cash	$	130,000	$	125,000
Accounts receivable		480,000		340,000
Inventory		490,000		570,000
Plant and equipment (net)		820,000		845,000
Total operating assets	$	1,920,000	$	1,880,000

Average operating assets	=	$1,880,000 + $1,920,000	=	$1,900,000
		2

Margin	=	Net operating income
		Sales

	=	$627,000	=	15%
		$4,180,000

Turnover	=	Sales
		Average operating assets

	=	$4,180,000	=	2.20
		$1,900,000

ROI

=

Margin × Turnover

=

15% × 2.2 = 33%

2.

Net operating income	$	627,000
Minimum required return   (20% × $1,900,000)		380,000
Residual income	$	247,000