Coolbrook Company has the following information available for the past year: Str
ID: 2569739 • Letter: C
Question
Coolbrook Company has the following information available for the past year: Stream Division Sales revenue Cost of goods sold and operating expenses Net operating income Average invested assets Rver DIviSIon $ 1,218,000 $ 1,801,000 $ 334,000 $ 507,000 $ 1,190,000 $ 1,540,000 884,000 1,294,000 The company's hurdle rate is 6.26 percent. Required 1. Calculate return on investment (ROI) and residual income for each division for last year. (Enter your ROl answers as a percentage rounded to two decimal places, (i.e., 0.1234 should be entered as 12.34% River DIvision Stream DIvision ROI Residual Income (Loss) 2. Recalculate ROl and residual income for each division for each independent situation that follows: (Enter your ROl answers as a percentage rounded to two decimal places, (i.e., 0.1234 should be entered as 12.34% a. Operating income increases by 10 percent. River DIvision Stream DIvision ROI Residual Income (Loss)Explanation / Answer
To calulate residual income full value of ROI is taken in consideration.of example .above ROI is 28.07 which is rounded up to 2 decimal places but to calcuate residual income I have taken 28.06722690756. for your referance i am also giving the full figure below .
River Division Streem division Sales Revenue 1218000 1801000 Cost of Goods sold & operating exp 884000 1294000 Net operating income 334000 507000 Average invested Assets 1190000 1540000 Company Hurdle rate 6.26 6.26 1) ROI and residual income of last year River Division Streem division ROI 28.07 32.92 Residual income 259506.00 410596.00 Residual income Agerage investesd assets X(ROI-HURDLE RATE)/100 2)-a- If operating income icreased by 10% So if net operting income 367400 557700 ROI 30.87 36.21 Residual income 292906 461296 2)-b- If operating income Decresead by 11% So if net operting income 297260 451230 ROI 24.98 29.30 Residual income 222766 354826 2)-C- The company Invests 255000 in each Division an 110000 additional income each divisional per division River Division Streem division Revised Net operating income 444000 617000 Revised Average invested Assets 1445000 1795000 Company Hurdle rate 6.26 6.26 River Division Streem division ROI 30.73 34.37 Residual income 353543.00 504633.00 2)-d- if change the hurdle rate River Division Streem division Net operating income 334000 507000 Average invested Assets 1190000 1540000 Company Hurdle rate 4.26 4.26 River Division Streem division ROI 28.07 32.92 Residual income 283306.00 441396.00