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.)

7 value: ' 10.00 points PA1D-1 Calculating Return on Investment, Residual Income, Determining Effect of Changes i 10-4, 10-5] Coelbrook Company has the following inormation available for the past yeah River Shun Dhr'nion Diviion Sales revenue {'9 1,211,000 $ 1,811,000 Cost of goods sold and operating expenses 099,000 1,207,000 Net operating income 5 312,000 5 524,000 Average invested assets 5 1,090,000 $ 1,420,000 The company's hurdle rate is 6.51 percent. Required: 1. Calculate retum on investment (ROI) and residual income for each division for last year. (Do not round your lntem'lediate calculations. Round \"ROI" answers to 2 decimal places] m-II- _-I-I 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.) E--I-I _-I-I h. Operating income decreases by 11 percent. [Do not round your intermediate calculations. Round "ROI" answers to 2 decimal places} ROI '11: WE- Residual Income c. The company invests $251,000 in each t:li-.|risir.:lnr an amount that generates $111 .000 eddiiional income per division. [Do not round your intermediate calculations. Round "ROI'I answers to 2 decimal places] d. Goolbrook changes its hurdle rate to 4.51 percent [Do not round your intermediate calculations. Round "ROI" answers to 2 decimal places.] E-_--_ m