Juniper Design Ltd. of Manchester, England, is a company specializing in providing design services to

Juniper Design Ltd. of Manchester, England, is a company specializing in providing design services to residential developers. Last year the company had net operating income of £410,000 on sales of £1,400,000. The company's average operating assets for the year were £1,600,000 and its minimum required rate of return was 11%. (The currency used in England is the pound, denoted by £.)

Required:

Compute the company's residual income for the year. (Omit the "£" sign in your response.)

 

Residual income

£

Explanation:

Average operating assets	£1,600,000
Net operating income	£410,000
Minimum required return: 11% × £ 1,600,000	176,000
Residual income	£234,000

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