2.

Financial data for Joel de Paris, Inc., for last year follow: Joel de Paris, Inc Balance Sheet Beginning Ending Balance Balance Assets Cash 129,000 330,000 562,000 839,000 127,000 Accounts receivable Inventory Plant and equipment, net Investment in Buisson, S.A Land (undeveloped) 474,000 487,000 812,000 410,000 249,000 430,000 247,000 $2,519,000 $ 2,577,000 Total assets Liabilities and Stockholders' Equity Accounts payable Long-term debt Stockholders' equity 383,000 338,000 954,000 1,285,000 $ 2,577,000 954,000 1,182,000 $ 2,519,000 Total liabilities and stockholders' equity Joel de Paris, Inc Income Statement $ 4,324,000 Sales Operating expenses 3,675,400 Net operating income Interest and taxes: 648,600 $ 115,000 190,000 Interest expense Tax expense 305,000 343,600 Net income The company paid dividends of $240,600 last year. The "Investment in Buisson, S.A.," on the balance sheet represents an investment in the stock of another company. The company's minimum required rate of return of 15% Required: 1. Compute the company's average operating assets for last year. 2. Compute the company's margin, turnover, and return on investment (ROI) for last year. (Round "Margin", "Turnover" and "ROI" to 2 decimal places.) 3. What was the company's residual income last year? Average operating assets 2. 1 Margin Turnover ROI 3. Residual income "I know headquarters wants us to add that new product line," said Dell Havasi, manager of Billings Company's Office Products Division. "But I want to see the numbers before I make any move. Our division's return on investment (ROI) has led the company for three years and I don't want any letdown." Billings Company is a decentralized wholesaler with five autonomous divisions. The divisions are evaluated on the basis of ROI, with year-end bonuses given to the divisional managers who have the highest ROls. Operating results for the company's Office Products Division for this year are given below: $ 21,810,000 13,741,200 8,068,800 6,040,000 Sales Variable expenses Contribution margin Fixed expenses Net operating income 2,028,800 $ 4,363,000 Divisional average operating assets The company had an overall return on investment (ROI) of 18.00% this year (considering all divisions). Next year the Office Products Division has an opportunity to add a new product line that would require an additional investment that would increase average operating assets by $2,350,000. The cost and revenue characteristics of the new product line per year would be: Sales $9,396,500 65 of sales $2,564,875 Variable expenses Fixed expenses Required: 1. Compute the Office Products Division's ROI for this year. 2. Compute the Office Products Division's ROl for the new product line by itself. 3. Compute the Office Products Division's ROl for next year assuming that it performs the same as this year and adds the new product line 4. If you were in Dell Havasi's position, would you accept or reject the new product line? 5. Why do you suppose headquarters is anxious for the Office Products Division to add the new product line? 6. Suppose that the company's minimum required rate of return on operating assets is 15% and that performance is evaluated using residual income. a. Compute the Office Products Division's residual income for this year. b. Compute the Office Products Division's residual income for the new product line by itself. c. Compute the Office Products Division's residual income for next year assuming that it performs the same as this year and adds the new product line. d. Using the residual income approach, if you were in Dell Havasi's position, would you accept or reject the new product line? Complete this question by ente ring your answers in the tabs below. Req 4 Req 6A to 6C Req 6D Req 1 to 3 Req 5 1. Compute the Office Products Division's ROI for this year. 2. Compute the Office Products Division's ROI for the new product line by itself. 3. Compute the Office Products Division's ROI for next year assuming that it performs the same as this year and adds the new product line. (Do not round intermediate calculations. Round your answer to 2 decimal places.) Show less 1. ROI for this year 2. ROI for the new product line by itself 3. ROI for next year Complete this question by entering your answers in the tabs below. Req 1 to 3 Req 4 Req 5 Req 6A to 6C Req 6D If you were in Dell Havasi's position, would you accept or reject the new product line? Acept OReject Complete this question by entering your answers in the tabs below. Req 6A to 6C Req 1 to 3 Req 4 Req 5 Req 6D Why do you suppose headquarters is anxious for the Office Products Division to add the new product line? OAdding the new line would increase the company's overall ROI Adding the new line would decrease the company's overall ROI Complete this question by entering your answers in the tabs below. Req 1 to 3 Req 4 Req 5 Req 6A to 6C Req 6D 6. Suppose that the company's minimum required rate of return on operating assets is 15% and that performance is evaluated using residual income.a. Compute the Office Products Division's residual income for this year. b. Compute the Office Products Division's residual income for the new product line by itself. c. Compute the Office Products Division's residual income for next year assuming that it performs the same as this year and adds the new product line. Show less 1. Residual income for this year 2. Residual income for the new product line by itself 3. Residual income for next year Complete this question by entering your answers in the tabs below. Req 5 Req 1 to 3 Req 4 Req 6A to 6C Req 6D Using the residual income approach, if you were in Dell Havasi's position, would you accept or reject the new product line? OAccept Reject