PROBLEM 11–18 Return on Investment and Residual Income [LO3, LO4]

Financial data for Bridger Inc. for last year are as    follows:

 

 

 

 

Ending Balance

Beginning Balance Assets

Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  

$  150,000  

$  145,000

Accounts receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

500,000

360,000

Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

510,000

590,000

Plant and equipment, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

840,000

865,000

Investment in Brier Company . . . . . . . . . . . . . . . . . . . . . . . . . . .

450,000

420,000

Land (undeveloped). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

    270,000

    270,000

Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$2,720,000

$2,650,000 Liabilities and shareholders’ equity

Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  

$ 340,000  

$ 380,000

Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1,000,000

1,000,000

Shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

  1,380,000

   1,270,000

Total liabilities and shareholders’ equity . . . . . . . . . . . . . . . .   .

$2,720,000

$2,650,000

 

 

 

 

Sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

 

$4,180,000

Operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . .

 

 3,553,000 Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest and  taxes:

Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . .  

 

$ 120,000

627,000

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 common shares of another company.

Required:

1.              Compute the company’s margin, turnover, and 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?

 

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PROBLEM 11–18 Return on Investment and Residual Income [LO3, LO4] Financial data for Bridger Inc…. was first posted on July 1, 2020 at 12:53 am.
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