Financial Data for Beaker Company for Last Year Appear Below $\quad$

question 166

Essay

Financial data for Beaker Company for last year appear below:

$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$ Beaker Company
$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$ Statements of Financial Position
$\begin{array}{lrr}&\text { Beginning }&\text { Ending }\\&\text { Balance }&\text { Balance }\\\text { Assets: }\\\text { Cash } & \$ 50,000 & \$ 70,000 \\\text { Accounts receivable } & 20,000 & 25,000 \\\text { Inventory } & 30,000 & 35,000 \\\text { Plant and equipment (net) } & 120,000 & 110,000 \\\text { Investment in Cedar Company } & 80,000 & 100,000 \\\text { Land (undeveloped) } & \underline{170,000} & \underline{170,000} \\\text { Total assets } & \$ 470,000 & \$ 510,000\\\\\text { Liabilities and owners' equity: }\\\text { Accounts payable } & \$ 70,000 & \$ 90,000 \\\text { Long-term debt } & 250,000 & 250,000 \\\text { Owners' equity } & \underline{150,000} & \underline{170,000} \\ \text { Total liabilities } & &\\\text { and owners' equity }& \$ 470,000 & \$ 510,000 \end{array}$

$\begin{array}{lrr}\end{array}$ Beaker Company
Income Statement
$\begin{array}{lccc}\text { Sales } &&\$ 414,000\\\text { Less operating expenses }&&351,900\\\text { Net operating income }&&62,100\\\text { Less interest and taxes: }\\\text {Interest expense }&\$ 30.000\\\text {Tax expense}&10.000 &40,000\\\text { Operating Income }&&\$ 22,100\\\end{array}$

The company paid dividends of $2,100 last year. The "Investment in Cedar Company" on the statement of financial position represents an investment in the stock of another company.

Required:

a) Compute the company's margin, turnover, and return on investment for last year.
b) The Board of Directors of Beaker Company have set a minimum required return of 20%. What was the company's residual income last year?

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Definitions:

CCA Class

Canadian Capital Cost Allowance Class; a categorization in Canadian tax law that determines the depreciation rate for tax purposes on different types of assets.

Required Rate

The lowest expected gain an investor aims to receive from an investment in a specific asset, taking into account the associated risk.

Fixed Costs

Expenses that do not change with the volume of production or sales, such as rent, salaries, and insurance premiums.

Bottom-Up Approach

A strategy that starts at the very detailed level and works upwards to form a complete picture, often used in analysis or planning.