Question
PA10-1 Calculating Return on Investment, Residual Income, Determining Effect of Changes in Sales, Expenses, Invested Asset, Hurdle Rate on Each [LO 10-4, 10-5] Coolbrook Company
PA10-1 Calculating Return on Investment, Residual Income, Determining Effect of Changes in Sales, Expenses, Invested Asset, Hurdle Rate on Each [LO 10-4, 10-5]
Coolbrook Company has the following information available for the past year:
River
DivisionStream DivisionSales revenue$1,211,000$1,811,000Cost of goods sold and operating expenses899,0001,287,000Net operating income$312,000$524,000Average invested assets$1,090,000$1,420,000The company?s hurdle rate is 6.51 percent.Required:1.Calculate return on investment (ROI) and residual income for each division for last year.(Do not round your intermediate calculations. Round "ROI"answers to2decimal places.)
2.Recalculate ROI and residual income for each division for each independent situation that follows:
a.Operating income increases by 10 percent.(Do not round your intermediate calculations. Round "ROI"answers to 2 decimal places.)
b.Operating income decreases by 11 percent.(Do not round your intermediate calculations. Round "ROI"answers to 2 decimal places.)
c.The company invests $251,000 in each division, an amount that generates $111,000 additional income per division.(Do not round your intermediate calculations. Round "ROI"answers to 2 decimal places.)
d.Coolbrook changes its hurdle rate to 4.51 percent.(Do not round your intermediate calculations. Round "ROI"answers to 2 decimal places.)
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