Coolbrook Company has the following information available for the past year: Cal
ID: 2463317 • 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.)
ROI:
Residual Income:
Recalculate ROI and residual income for each division for each independent situation that follows:
Operating income increases by 10 percent. (Do not round your intermediate calculations. Round "ROI" answers to 2 decimal places.)
ROI:
Residual Income:
Operating income decreases by 12 percent. (Do not round your intermediate calculations. Round "ROI" answers to 2 decimal places.)
ROI:
Residual Income:
The company invests $249,000 in each division, an amount that generates $120,000 additional income per division. (Do not round your intermediate calculations. Round "ROI" answers to 2 decimal places.)
ROI:
Residual Income:
Coolbrook changes its hurdle rate to 6.01 percent. (Do not round your intermediate calculations. Round "ROI" answers to 2 decimal places.)
ROI:
Residual Income:
RiverDivision Stream Division Sales revenue $ 1,207,000 $ 1,813,000 Cost of goods sold and operating expenses 885,000 1,286,000 Net operating income $ 322,000 $ 527,000 Average invested assets $ 1,010,000 $ 1,430,000
Explanation / Answer
1.
ROI =income/investment
Residual income=income - (hurdle rate×investment)
322000/1010000
527000/1430000
31.88%
36.85%
322000-(8.01%*1010000)
527000-(8.01%*1430000)
241099
412457
2
a. Income increase by 10%
b.income increase by 12%
C.
d. Hurdle rate now 6.01%
Formula River stream Income 322000 527000 Investment 1010000 1430000 Hurdle rate 8.01% 8.01% ROI322000/1010000
527000/1430000
31.88%
36.85%
Residual income322000-(8.01%*1010000)
527000-(8.01%*1430000)
241099
412457