Financial data for Joel de Paris, Inc., for last year follow:

Financial data for Joel de Paris, Inc., for last year follow:

Joel de Paris, Inc. Balance Sheet
	Beginning Balance		Ending Balance
Assets
Cash	$	125,000	$	139,000
Accounts receivable		331,000		488,000
Inventory		573,000		472,000
Plant and equipment, net		871,000		841,000
Investment in Buisson, S.A.		407,000		433,000
Land (undeveloped)		248,000		246,000
Total assets	$	2,555,000	$	2,619,000
Liabilities and Stockholders' Equity
Accounts payable	$	372,000	$	337,000
Long-term debt		1,037,000		1,037,000
Stockholders' equity		1,146,000		1,245,000
Total liabilities and stockholders' equity	$	2,555,000	$	2,619,000

Joel de Paris, Inc. Income Statement
Sales		$	4,224,000
Operating expenses			3,548,160
Net operating income			675,840
Interest and taxes:
Interest expense	$ 127,000
Tax expense	197,000		324,000
Net income		$	351,840

The company paid dividends of $252,840 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.)    Explanation: 1. Operating assets do not include investments in other companies or in undeveloped land.     Beginning Balances Ending Balances   Cash $ 125,000   $ 139,000     Accounts receivable   331,000     488,000     Inventory   573,000     472,000     Plant and equipment (net)   871,000     841,000       Total operating assets $ 1,900,000   $ 1,940,000     Average operating assets = $1,940,000 + $1,900,000 =  $1,920,000 2 Margin = Net operating income     Sales   = $675,840 = 16.00% $4,224,000 Turnover = Sales     Average operating assets   = $4,224,000 =  2.20 $1,920,000  ROI =  Margin × Turnover   =  16.00% × 2.20 = 35.20% 2. Minimum required return (14% × $1,920,000) = $268,800

Pecs Alley is a regional chain of health clubs. The managers of the clubs, who have authority to make

Pecs Alley is a regional chain of health clubs. The managers of the clubs, who have authority to make investments as needed, are evaluated based largely on return on investment (ROI). The Springfield Club reported the following results for the past year:

 

Sales	$890,000
Net operating income	$18,000
Average operating assets	$98,000

 

The following questions are to be considered independently. Carry out all computations to two decimal places.

 

Requirement 1:

Compute the club's return on investment (ROI). (Round interim calculations to 2 decimal places. Round your answer to the nearest whole percentage. Omit the "%" sign in your response.)

 

Return on investment

%

 

Requirement 2:

Assume that the manager of the club is able to increase sales by $76,000 and that, as a result, net operating income increases by $6,000. Further assume that this is possible without any increase in operating assets. What would be the club’s return on investment (ROI)? (Round interim calculations to 2 decimal places. Round your answer to the nearest whole percentage.Omit the "%" sign in your response.)

 

Return on Investment

%

 

Requirement 3:

Assume that the manager of the club is able to reduce expenses by $2,800 without any change in sales or operating assets. What would be the club’s return on investment (ROI)? (Round interim calculations to 2 decimal places. Round your answer to the nearest whole percentage. Omit the "%" sign in your response.)

 

Return on investment

%

 

Requirement 4:

Assume that the manager of the club is able to reduce operating assets by $21,000 without any change in sales or net operating income. What would be the club’s return on investment (ROI)? (Round interim calculations to 2 decimal places. Round your answer to the nearest whole percentage. Omit the "%" sign in your response.)

 

Return on investment

%

Explanation:

1:

Margin  =	Net Operating income
	Sales
=	$18,000	= 2.02%
	$890,000

 

Turnover =	Sales
	Average operating assets
=	$890,000	= 9.08
	$98,000

ROI	= Margin × Turnover
	= 2.02% × 9.08 = 18%

2:

Margin =	Net Operating income
	Sales
=	$18,000+$6,000
	$890,000+$76,000
=	$24,000	= 2.48%
	$966,000

    

Turnover =	Sales
	Average operating assets
=	$890,000+$76,000
	$98,000
=	$966,000	= 9.86
	$98,000

ROI	= Margin × Turnover
	= 2.48% × 9.86 = 24%

3:

Margin =	Net Operating income
	Sales
=	$18,000+$2,800
	$890,000
=	$20,800	= 2.34%
	$890,000

 

Turnover =	Sales
	Average operating assets
=	$890,000	= 9.08
	$98,000

ROI	= Margin × Turnover
	= 2.34% × 9.08 = 21%

4:

Margin =	Net Operating income
	Sales
=	$18,000	= 2.02%
	$890,000

 

Turnover =	Sales
	Average operating assets
=	$890,000
	$98,000 – $21,000
=	$890,000	= 11.56
	$77,000

ROI	= Margin × Turnover
	= 2.02% × 11.56 = 23%