Question
1. Cabell Products is a division of a major corporation. Last year the division had total sales of $27,170,000, net operating income of $2,662,660, and
1. Cabell Products is a division of a major corporation. Last year the division had total sales of $27,170,000, net operating income of $2,662,660, and average operating assets of $8,151,000. The company's minimum required rate of return is 12%.
The division's residual income is closest to:
Multiple Choice
I will make sure to rate it as good if you answer it completely.
- $1,684,540
- $2,662,660
- $(1,956,240)
- $3,640,7802.Financial data for Beaker Company for last year appear below:
Beaker Company Statements of Financial Position Beginning Balance Ending Balance Assets: Cash $ 271,000 $ 326,100 Accounts receivable 168,000 198,000 Inventory 248,000 292,000 Plant and equipment (net) 490,000 424,000 Investment in Cedar Company 260,000 339,000 Land (undeveloped) 330,000 330,000 Total assets $ 1,767,000 $ 1,909,100 Liabilities and owners' equity: Accounts payable $ 176,000 $ 228,000 Long-term debt 862,000 862,000 Owners' equity 729,000 819,100 Total liabilities and owners' equity $ 1,767,000 $ 1,909,100
Beaker Company Income Statement Sales $ 2,440,000 Less operating expenses 1,952,000 Net operating income 488,000 Less interest and taxes: Interest expense $ 99,500 Tax expense 146,400 245,900 Net income $ 242,100
The company paid dividends of $152,000 last year. The "Investment in Cedar Company" on the statement of financial position represents an investment in the stock of another company.
Required:
a. Compute the company's margin, turnover, and return on investment for last year.
b. The Board of Directors of Beaker Company has set a minimum required return of 35%. What was the company's residual income last year?
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