Coolbrook Company has the following information available for the past year: ...
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Accounting
Coolbrook Company has the following information available for the past year:
| River Division | Stream Division | ||||
| Sales revenue | $ | 1,214,000 | $ | 1,814,000 | |
| Cost of goods sold and operating expenses | 897,000 | 1,286,000 | |||
| Net operating income | $ | 317,000 | $ | 528,000 | |
| Average invested assets | $ | 1,150,000 | $ | 1,580,000 | |
The companys hurdle rate is 7.26 percent.
Required:
1. Calculate return on investment (ROI) and residual income for each division for last year.
2. Recalculate ROI and residual income for the division for each independent situation that follows:
a. Operating income increases by 10 percent.
b. Operating income decreases by 12 percent.
c. The company invests $250,000 in each division, an amount that generates $115,000 additional income per division.
d. Coolbrook changes its hurdle rate to 5.26 percent.
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