Question

Coolbrook Company has the following information available for the past year: Sales revenue Cost of goods sold and operating expenses Net operating income Average invested assets River Division $ 1,219,000 894,000 $ 325,000 $ 1,080,000 Stream Division $ 1,812,000 1,285,000 $ 527,000 $ 1,430,000 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 ROI 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)

Answer 1

Average Operating Assets 1080000 1430000 Net operating income 3250001 527000 Minimum Required Rate of Return 6.76% 6.76% ROI : operating income / operating assets Residula income: Operating income-Minimum required income River Division Stream Division 1.) ROI and residual income ROI 30.09% 36.85% Residual Income 251992 430332 2. a)Operating income increase by 8% Net operating income 3510001 569160 ROI 32.50% 39.80% Residual Income 277992 472492 B) Operating income Decrease by 9% Net operating income 295750 479570 ROI 27.38% 33.54% Residual Income 222742 382902 C) Invest 260000 ti increase Adational Income of 119,000 Net operating income 444000 646000 Average Opearating Assets 1340000 1690000 ROI 33.13% 38.22% Residual Income 353416 531756) D) Reduce the Hurdel Rate to 4.76% Minimum Required Rate of Return 4.76% 4.76% ROI 30.09% 36.85% Residual Income 273592 458932