Coolbrook Company has the following information available for the past year: Riv
ID: 2448162 • Letter: C
Question
Coolbrook Company has the following information available for the past year:
River Division Stream Division
Sales revenue $ 1,206,000 $ 1,801,000
Cost of goods sold and operating expenses 885,000 1,285,000
Net operating income $ 321,000 $ 516,000
Average invested assets $ 1,140,000 $ 1,590,000
The company’s hurdle rate is 6.26 percent.
Required: 1. Calculate return on investment (ROI) and residual income for each division for last year. (Do not round your intermediate calculations. Round "ROI" answers to 2 decimal places.)
2. Recalculate ROI and residual income for each division for each independent situation that follows:
a. Operating income increases by 10 percent. (Do not round your intermediate calculations. Round "ROI" answers to 2 decimal places.)
b. Operating income decreases by 8 percent. (Do not round your intermediate calculations. Round "ROI" answers to 2 decimal places.)
c. The company invests $259,000 in each division, an amount that generates $112,000 additional income per division. (Do not round your intermediate calculations. Round "ROI" answers to 2 decimal places.)
d. Coolbrook changes its hurdle rate to 4.26 percent. (Do not round your intermediate calculations. Round "ROI" answers to 2 decimal places.)
Explanation / Answer
Coolbrook Company has the following information available for the past year: Riv