Question

Coolbrook Company has the following information available for the past year:   

	River Division			Stream Division
Sales revenue	$	1,216,000		$	1,819,000
Cost of goods sold and operating expenses		890,000			1,292,000
Net operating income	$	326,000		$	527,000
Average invested assets	$	1,080,000		$	1,450,000

   
The company’s hurdle rate is 7.76 percent.

Required:
1. Calculate return 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%.))



2. Recalculate ROI and residual income for each division for each independent situation that follows: (Enter your ROI answers as a percentage rounded to two decimal places, (i.e., 0.1234 should be entered as 12.34%.))

a. Operating income increases by 9 percent.



b. Operating income decreases by 9 percent.



c. The company invests $246,000 in each division, an amount that generates $107,000 additional income per division.



d. Coolbrook changes its hurdle rate to 5.76 percent.

Answer 1