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

	River Division		Stream Division
Sales revenue	$	1,200,000	$	1,800,000
Cost of goods sold and operating expenses		900,000		1,300,000
Net operating income	$	300,000	$	500,000
Average invested assets	$	1,200,000	$	1,800,000

The company’s hurdle rate is 6 percent.

Required:

1. Calculate return on investment (ROI) and residual income for each division for last year.

2. Recalculate ROI and residual income for each division for each independent situation that follows:

a. Operating income increases by 10 percent.

b. Operating income decreases by 10 percent.

c. The company invests $250,000 in each division, an amount that generates $100,000 additional income per division.

d. Coolbrook changes its hurdle rate to 10 percent.