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Ratios and residual income

Please see attached file. thanks

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?

Attachments

Solution Preview

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 ...

Solution Summary

The solution explains the calculation of some ratios and the residual income.

$2.19