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A10-1 (Algo) Calculating Return on Investment, Residual Income, Determining Effect of Changes in Sales, Expenses, Invested Assets, Hurdle Rate on Each [LO 10-4, 10-5]

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

	River Division			Stream Division
Sales revenue	$	1,207,000		$	1,808,000
Cost of goods sold and operating expenses		883,000			1,286,000
Net operating income	$	324,000		$	522,000
Average invested assets	$	1,110,000		$	1,410,000

The companys hurdle rate is 8.01 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 11 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 6.01 percent.