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In: Accounting

Coolbrook Company has the following information available for the past year:    River Division Stream Division Sales...

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

River Division Stream Division
Sales revenue $ 1,212,000 $ 1,807,000
Cost of goods sold and operating expenses 894,000 1,292,000
Net operating income $ 318,000 $ 515,000
Average invested assets $ 1,170,000 $ 1,400,000

   
The company’s hurdle rate is 8.01 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 8 percent.



b. Operating income decreases by 9 percent.



c. The company invests $245,000 in each division, an amount that generates $118,000 additional income per division.



d. Coolbrook changes its hurdle rate to 6.01 percent.

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