Coolbrook company has the following information avaiable for past year. River di
ID: 2463776 • Letter: C
Question
Coolbrook company has the following information avaiable for past year.
River division
Sales Revenue - $1,200,000
Cogs and operating expenses - 897,000
net operating income- 303,000
average invested assets- $1,110,000
Stream division
sales revenue- $1,806,000
cogs and operating expenses- 1,290,000
net operating income- $516,000
Averafe invested assets- $1,440,000
The company's hurdle rate is 6.51 percent.
Please calculate reutn on investment (ROI) and residulal income for each division for last year, Round to four decimals=
Recaluclate ROI and residual income for each division for operating income increases by
11 percent
ROI=
Residual income=
-------------------------
and
operating income decreases by 12 percent
ROI=
Residual income=
Explanation / Answer
River division Stream division At present If income increase by 11% decrease by 12% At present If income increase by 11% decrease by 12% Net income[A] 303000 303000(1+.11) = 336330 303000(1-.12)= 266640 516000 516000(1+.11)=572760 516000(1-.12)=454080 Average asset [B] 1110000 1110000 1110000 1440000 1440000 1440000 ROI [A/B] 27.2973% [303000/1110000] 30.3% 24.0216% 35.8333% 39.775% 31.5333% Return on asset [C] 72261 [1110000*.0651] 72261 72261 93744 [1440000*.0651] 93744 93744 Residual income [[A-C] 303000-72261 = 230739 336330-72261= 264069 194379 516000- 93744 = 422256 572760-93744= 479016 360336