Joel de Paris, Inc. Balance Sheet Beginning Balance Ending Balance Assets Cash Accounts receivable Inventory Plant and equipment, net Investment in Buisson, S.A. Land (undeveloped) Total assets Liabilities and Stockholders' Equity Accounts payable Long-term debt Stockholders' equity Total liabilities and stockholders' equity $ 134,000 334,000 572,000 800,000 403,000 247.000 $ 2,490,000 $ 131,000 482,000 489,000 778,000 433,000 254,000 $ 2,567,000 s 383,000 954,000 1,153,000 $ 2,490.000 $ 338,000 954,000 1,275,000 $ 2,567,000 Joel de Paris, Inc. Income Statement Sales Operating expenses Net operating income Interest and taxes: Interest expense $ 122,000 Tax expense 190,000 Net Income $ 4,278,000 3,721,860 556,140 312,000 244,140 $ The company paid dividends of S122,140 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. (Do not round intermediate calculations and round your final answers to 2 decimal places.) 3. What was the company's residual income last year? 1. Average operating assets Margin 2. % Turnover ROI % 3. Residual income Profits have been decreasing for several years at Pegasus Airlines. In an effort to improve the company's performance, the company is thinking about dropping several flights that appear to be unprofitable A typical income statement for one round-trip of one such flight (flight 482) is as follows: $15,200 1,140 14.060 100.00 7.5 92.58 Ticket revenue (190 seats x 40occupancy $200 ticket price) Variable expenses ($15.00 per person) Contribution margin night expenses Salaries, flight crew Plight promotion Depreciation of aircraft Fuel for aircraft Liability insurance Salaries, flight assistants Baggage loading and flight preparation Overnight costs for flight crew and assistants at destination Total flight expenses Net operating loss $ 1.900 790 1,700 5,200 5,100 1.300 1.800 600 18,390 $(4,330) The following additional information is available about flight 482: a. Members of the flight crew are paid fixed annual salaries, whereas the flight assistants are paid based on the number of round trips b. One-third of the liability insurance is a special charge assessed against flight1482 because in the opinion of the insurance company, the destination of the flight is in a "high-risk" area. The remaining two-thirds would be unaffected by a decision to drop flight 482 c. The baggage loading and flight preparation expense is an allocation of ground crews' salaries and depreciation of ground equipment. Dropping flight 482 would have no effect on the company's total baggage loading and flight preparation expenses. d. If flight 482 is dropped, Pegasus Airlines has no authorization at present to replace it with another flight. e. Aircraft depreciation is due entirely to obsolescence. Depreciation due to wear and tear is negligible. f. Dropping flight 482 would not allow Pegasus Airlines to reduce the number of aircraft in its fleet or the number of flight crew on its Required: 1. What is the financial advantage (disadvantage) of discontinuing flight 482
