Coolbrook Company has the following information available for the past year: Ope
ID: 2458801 • Letter: C
Question
Coolbrook Company has the following information available for the past year:
Operating income increases by 10 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 1 decimal place.)
The company invests $250,000 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 10 percent. (Do not round your intermediate calculations. Round "ROI" answers to 1 decimal places.)
Coolbrook Company has the following information available for the past year:
Explanation / Answer
1./
RIVER DIVISION STREAM DIVISION
NET OPERATING INCOME $300000 $500000
AVERAGE IN VESTED ASSET $1200000 $1800000
ROI ( NET OPERATINH INCOME /INVESTED ASSET) 25% 27.78%
RIVER DIVISION STREAM DIVISION
NET OPERATING INCOME $300000 $500000
MINIMUM REQUIRE RETURN ASSET (HURDLE RATE 6%) ($72000) ($108000)
RESEDUAL INCOME $228000 $392000
2.A./ OPERATING INCOME INCREASE BY 10%
RIVER DIVISION STREAM DIVISION
NET OPERATING INCOME $330000 $550000
AVERAGE IN VESTED ASSET $1200000 $1800000
ROI ( NET OPERATINH INCOME /INVESTED ASSET) 27.5% 30.55%
RIVER DIVISION STREAM DIVISION
NET OPERATING INCOME $330000 $550000
MINIMUM REQUIRE RETURN ASSET (HURDLE RATE 6%) ($72000) ($108000)
RESEDUAL INCOME $258000 $442000
2.B./ OPERATING INCOME DECEREASE BY 10%
RIVER DIVISION STREAM DIVISION
NET OPERATING INCOME $270000 $450000
AVERAGE IN VESTED ASSET $1200000 $1800000
ROI ( NET OPERATINH INCOME /INVESTED ASSET) 22.5% 25%
RIVER DIVISION STREAM DIVISION
NET OPERATING INCOME $270000 $450000
MINIMUM REQUIRE RETURN ASSET (HURDLE RATE 6%) ($72000) ($108000)
RESEDUAL INCOME $198000 $342000
2.C./ COMPANY INVESTS ADDITIONAL $250000 IN EACH DIVISION THAT GENERATES $100000 ADDITIONAL INCOME PER DIVISION
RIVER DIVISION STREAM DIVISION
NET OPERATING INCOME $400000 $600000
AVERAGE IN VESTED ASSET $1450000 $2050000
ROI ( NET OPERATINH INCOME /INVESTED ASSET) 27.59% 29.27%
RIVER DIVISION STREAM DIVISION
NET OPERATING INCOME $400000 $600000
MINIMUM REQUIRE RETURN ASSET (HURDLE RATE 6%) ($87000) ($123000)
RESEDUAL INCOME $313000 $477000
2.D./ HURDLE RATE INCREASED TO 10%
RIVER DIVISION STREAM DIVISION
NET OPERATING INCOME $300000 $500000
AVERAGE IN VESTED ASSET $1200000 $1800000
ROI ( NET OPERATINH INCOME /INVESTED ASSET) 25% 27.78%
RIVER DIVISION STREAM DIVISION
NET OPERATING INCOME $300000 $500000
MINIMUM REQUIRE RETURN ASSET (HURDLE RATE 10%) ($120000) ($180000)
RESEDUAL INCOME $180000 $320000