Question
Coolbrook Company has the following information available for the past year: River Division Stream Division Sales revenue $ 1,211,000 $ 1,813,000 Cost of goods sold
Coolbrook Company has the following information available for the past year:
River Division | Stream Division | ||||
Sales revenue | $ | 1,211,000 | $ | 1,813,000 | |
Cost of goods sold and operating expenses | 883,000 | 1,300,000 | |||
Net operating income | $ | 328,000 | $ | 513,000 | |
Average invested assets | $ | 1,090,000 | $ | 1,590,000 | |
The companys hurdle rate is 6.51 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 9 percent.
b. Operating income decreases by 11 percent.
c. The company invests $251,000 in each division, an amount that generates $103,000 additional income per division.
d. Coolbrook changes its hurdle rate to 4.51 percent.
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