Ratios and residual income
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Financial data for Ratco Company last year appear below:
Ratco company
Statements of Financial Position
Beginning balance Ending balance
Assets:
Cash $120,000 $160,0000
Accounts receivable 110,000 100,000
Inventory 50,000 60,000
Plant and equipment(net) 180,000 160,000
Investment in Balsam company 50,000 60,000
Land (undeveloped) 120,000 120,000
Total Assets $630,000 $660,000
Liabilities and owners' equity
Accounts payable $70,000 $90,000
Long-term debt 500,000 500,000
Owner's equity 60,000 70,000
Total liabilities and owners equity $630,000 $660,000
Ratco company
Income Statement
Sales $1,222,000
Less operating expenses 1,099,800
Net operating income 122,200
Less interest and taxes:
Interest expense $60,000
Tax expense $20,000 80,000
Net Income $42,200
The company paid dividends of $32,200 last year. The" investment in Balsam Company" on the statement of financial position represents an investment in the stock of another company.
A- Compute the company's margin, turnover and return on investment for last year
B- The Board of Directors of Ratco has set a minimum required return of 25%. What was the company's residual income last year?
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Solution Summary
The solution explains the calculation of some ratios and the residual income.
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Please see the attached file
Financial data for Ratco Company last year appear below:
Ratco company
Statements of Financial Position
Beginning balance Ending balance
Assets:
Cash $120,000 $160,0000
Accounts receivable 110,000 100,000
Inventory 50,000 60,000
Plant and equipment(net) 180,000 160,000
Investment in Balsam company ...
Purchase this Solution
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