Coolbrook company has the following information avaiable for past year. River di
ID: 2463862 • 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.
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The comapny invest $257,000 in each division, an amount that generates $102,000 additional income per division.
ROI =
Residual income =
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Coolbrook changes it hurdle rate to 4.51 percent.
ROI=
Residual income=
Explanation / Answer
River division
A)
1)
ROI = Net Income/Average Investment
ROI = (303000+102000)/(1110000+257000)
ROI = 29.63%
2)
Residual income = Net Income - Average Investment*hurdle rate
Residual income = (303000+102000)-(1110000+257000)*6.51%
Residual income = $ 316,008.30
B)
1)
ROI = Net Income/Average Investment
ROI = (303000+102000)/(1110000+257000)
ROI = 29.63%
2)
Residual income = Net Income - Average Investment*hurdle rate
Residual income = (303000+102000)-(1110000+257000)*4.51%
Residual income = $ 343,348.30
Stream division
A)
1)
ROI = Net Income/Average Investment
ROI = (516000+102000)/(1440000+257000)
ROI = 36.42%
2)
Residual income = Net Income - Average Investment*hurdle rate
Residual income = (516000+102000)- (1440000+257000)*6.51%
Residual income = $ 507,525.30
B)
1)
ROI = Net Income/Average Investment
ROI = (516000+102000)/(1440000+257000)
ROI = 36.42%
2)
Residual income = Net Income - Average Investment*hurdle rate
Residual income = (516000+102000)- (1440000+257000)*4.51%
Residual income = $ 541,465.30