Coolbrook Company has the following information available for the past year: Coo

Question

Coolbrook Company has the following information available for the past year:

Coolbrook Company has the following information available for the past year: Stream Sales revenue Cost of goods sold and operating expenses Net operating income Average invested assets River Division Division $ 1,207,000 1,816,000 $ 315,000 S 526,000 $ 1,100,000 1,580,000 892,000 1,290,000 The company's hurdle rate is 6.51 percent. Required: 1. Calculate return on investment (ROI) and residual income for each division for last year. Enter your ROI answers as a percentage rounded to two decimal places, (i.e., 0.1234 should be entered as 12.34%.)) am Division Divisiorn ROI Residual Income OSS 2. Recalculate ROI and residual income for each division for each independent situation that follows: (Enter your Rol answers as a percentage rounded to two decimal places, (i.e., 0.1234 should be entered as 12.34%.)) a. Operating income increases by 11 percent. River Division Stream Divisiorn ROI Residual Income (Loss) b. income decreases by 11 percent. ver Division Division ROI Residual Income

Explanation / Answer

SOLUTION

1.

River Division Stream Division ROI = Net Operating Income / Average invested assets Net Operating Income 315,000 526,000 Average invested assets 1,100,000 1,580,000 ROI 28.64% 33.29% Residual Income = Net Operating Income - (Average Invested Assets * Hurdle Rate) 315,000- (1,100,000*6.51%) 526,000 - (1,580,000*6.51%) Residual income 243,390 423,142

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