PA10-1 (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	$	1,201,000		$	1,815,000
Cost of goods sold and operating expenses		880,000			1,290,000
Net operating income	$	321,000		$	525,000
Average invested assets	$	1,030,000		$	1,430,000

The companys hurdle rate is 7.76 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 11 percent.

c. The company invests $240,000 in each division, an amount that generates $113,000 additional income per division.

d. Coolbrook changes its hurdle rate to 5.76 percent.

Reg 1 Req 2A Req 2B Req 2c Req 2D 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%.)) Show less River Stream Division Division ROI 31.00% % Residual Income (Loss) Req 1 Req 2A Req 2B Req 2c Req 2D Recalculate ROI and residual income for each division for the independent situation that follows: Operating income increases by 11 percent. (Enter your ROI answers as a percentage rounded to two decimal places, (i.e., 0.1234 should be entered as 12.34%.). Loss amounts should be indicated with a minus sign.) Show less A Stream River Division Division ROI % % Residual Income (Loss) Reg 1 Req 2A Req 2B Req 20 Req 2D Recalculate ROI and residual income for each division for the independent situation that follows: Operating income decreases by 11 percent. (Enter your ROI answers as a percentage rounded to two decimal places, (i.e., 0.1234 should be entered as 12.34%.). Loss amounts should be indicated with a minus sign.) Show less A Stream River Division Division ROI 1% % Residual Income (Loss) Req 1 Req 2A Req 2B Req 2c Req 2D Req 2A Retaltuiate ROI and residual income for each division for the independent situation that follows: The company invests $240,000 in each division, an amount that generates $113,000 additional income per division. (Enter your ROI answers as a percentage rounded to two decimal places, (i.e., 0.1234 should be entered as 12.34%.). Round your "Residual Income (Loss)" answer to the nearest whole dollars. Loss amounts should be indicated with a minus sign.) Show less River Stream Division Division ROI % % Residual Income (Loss) Req 1 Req 2A Req 2B Req 2c Req 2D Recalculate ROI and residual income for each division for the independent situation that follows: Coolbrook changes its hurdle rate to 5.76 percent. (Enter your ROI answers as a percentage rounded to two decimal places, (i.e., 0.1234 should be entered as 12.34%.). Loss amounts should be indicated with a minus sign.) Show less A River Division Stream Division ROI % % Residual Income (Loss)