Coolbrook Company has the following information available for the past year: Cal
ID: 2449396 • Letter: C
Question
Coolbrook Company has the following information available for the past year:
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.)
Recalculate ROI and residual income for each division for each independent situation that follows:
Operating income increases by 8 percent. (Do not round your intermediate calculations. Round "ROI" answers to 2 decimal places.)
Operating income decreases by 10 percent. (Do not round your intermediate calculations. Round "ROI" answers to 2 decimal places.)
The company invests $245,000 in each division, an amount that generates $100,000 additional income per division. (Do not round your intermediate calculations. Round "ROI" answers to 2 decimal places.)
Coolbrook changes its hurdle rate to 5.01 percent. (Do not round your intermediate calculations. Round "ROI" answers to 2 decimal places.)
Coolbrook Company has the following information available for the past year:
Explanation / Answer
Calculate return on investment (ROI) and residual income for each division for last year. (Do not round your intermediate calculations. Round "ROI" answers
ROI = Net operating income / Average invested assets
River = $312,000/$1040,000 = 30%
Stream = $528,000/ 1450,000 = 36.4137931%
Residual income = Operating income - ( average assets * hurdle rate)
River = 312,000 - $72,904 = $239,096
Stream = $528,000 - $101,645 = $426,355
2)a) Increase in operating income = 8%
River ROI = 312,000 @108%/ 1040,000 = 32.3948076%
Residuale income = $336,906 - 72,904 = $264,002
Stream ROI = 570,240/ 1450,000 = 39.3268 %
Residual income = $570,240 - 101,645 = $468,595
3) decrease in operting income 10%
ROI river = $280,800/1040,000 = 27%
residuale income = $280,800 - $72,904 = $207,896
ROI stream - $475,200/ 1450,000 = 32.7724137%
Residual income = $475,000 - 101,645 = $373,355
d)ROI River = $412,000/ 1285,000 = 32.06%
Residual incoem = $412,000 - $90078,50 = $321,921.50
Stream = $628,000/1695,000 = 37.05%
Residual income = 628,000 - ( 118819.50 )= $509180.50
D) New hurdle rate5.01%
Residual income river = 312,000 - $52104= $259,896
Stream = 528,000 - $72,645 = $455,355
.Calculate return on investment (ROI) and residual income for each division for last year. (Do not round your intermediate calculations. Round "ROI" answers
ROI = Net operating income / Average invested assets
River = $312,000/$1040,000 = 30%
Stream = $528,000/ 1450,000 = 36.4137931%
Residual income = Operating income - ( average assets * hurdle rate)
River = 312,000 - $72,904 = $239,096
Stream = $528,000 - $101,645 = $426,355
2)a) Increase in operating income = 8%
River ROI = 312,000 @108%/ 1040,000 = 32.3948076%
Residuale income = $336,906 - 72,904 = $264,002
Stream ROI = 570,240/ 1450,000 = 39.3268 %
Residual income = $570,240 - 101,645 = $468,595
3) decrease in operting income 10%
ROI river = $280,800/1040,000 = 27%
residuale income = $280,800 - $72,904 = $207,896
ROI stream - $475,200/ 1450,000 = 32.7724137%
Residual income = $475,000 - 101,645 = $373,355
d)ROI River = $412,000/ 1285,000 = 32.06%
Residual incoem = $412,000 - $90078,50 = $321,921.50
Stream = $628,000/1695,000 = 37.05%
Residual income = 628,000 - ( 118819.50 )= $509180.50
D) New hurdle rate5.01%
Residual income river = 312,000 - $52104= $259,896
Stream = 528,000 - $72,645 = $455,355