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.

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?