Coolbrook Company has the following information available for the past year Rive
ID: 2584611 • Letter: C
Question
Coolbrook Company has the following information available for the past year River Division Stream $ 1,219,000 1,810,000 Division Sales revenue Cost of goods sold and operating expenses Net operating income Average invested assets 990.000 1292000 S 329,000 S 518,000 S 1,100,000 1,550,000 The company's hurdle rate is 7.51 percent. Required 1. Calculate retum on investment (ROI) and residual income for each division for last year. (Enter your ROI answers as a percentage rounded to two decimal places, (i.e., 0.1234 should be entered as 12.34%.)) Division Division ROI Residual Income (Loss) 2. Recalculate ROI 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 11 percent. ROl Residual Income (Loss)Explanation / Answer
1. Calculation of ROI and Residual Income.
2. Calculation of ROI and Residual Income in various ways provided Below.
A. Operating Income increases by 11%
Net Oerational Income (Given) (A)
$ 365,190
($ 329,000 + 11%)
$ 574,980
($ 518,000 + 11%)
B. Operating Income Decreases by 8%
Net Oerational Income (Given) (A)
$ 302,680
($ 329,000 - 8%)
$ 476,560
($ 518,000 - 8%)
C. Additional Investment of $ 245,000 Which earn additional of $ 102,000 each Division.
Net Oerational Income (Given) (A)
$ 431,000
($ 329,000 + $ 102,000)
$ 620,000
($ 518,000 + $ 102,000)
Avaerage Invested Assets (Given)
(B)
$ 1,345,000
($ 1,100,000 + $ 245,000)
$ 1,795,000
($ 1,550,000 + $ 245,000)
D. Hurdle Rate change to 5.51 %
Net Oerational Income (Given) (A)
$ 329,000
$ 518,000
Avaerage Invested Assets (Given)(B)
$ 1,100,000
$ 1,550,000
River Division Stream Division Net Oerational Income (Given) (A) $ 329,000 $ 518,000 Avaerage Invested Assets (Given) (B) $ 1,100,000 $ 1,550,000 ROI (C= A / B*100) 29.91 % 33.42% Hurdle Rate (Given) (D) 7.51% 7.51% Hurdle Rate Income (E= B*D) $ 82,610 $ 116,405 Residual Income (F= A-E) $ 246,390 $ 401,595