Coolbrook Company has the following information available for the past year: Str
ID: 2569754 • 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 River Division $ 1,212,000 $ 1,803,000 $328,000 $ 514,000 $ 1,000,000 $ 1,510,000 884,000 1,289,000 The company's hurdle rate is 6.76 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
ROI = net operating income/average invested assets Residual income = net income - (average invested assets*hurdle rate) 1) river div stream div ROI 32.80% 34.04% Residual income 260400 411924 2) a ) operating income increases by 10% net operating income 360800 565400 river div stream div ROI 36.08% 37.44% Residual income 293200 463324 b) operating income decrease by 9% net operating income 298480 467740 river div stream div ROI 29.85% 30.98% Residual income 230880 365664 c) net operating income 428,000 614000 average invested assets 1258000 1768000 river div stream div ROI 34.02% 34.73% Residual income 342959 494483 d) hurdle rate 4.76% river div stream div ROI 32.80% 34.04% Residual income 280400 442124