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

Question

Coolbrook Company has the following information available for the past year: River Division Stream Division Sales revenue $1,219,000 1,817,000 Cost of goods sold and operating expenses Net operating income Average invested asset 889,000 1,287,000 $ 330,000 $ 530,000 $1,000,000 $ 1,490,000 The company's hurdle rate is 7.51 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 to 2 decimal places.) River Division Stream Division ROI 355710 Residual Income $ 254,900 $ 418,101 2. Recalculate ROl and residual income for each division for each independent situation that follows: a. Operating income increases by 9 percent. (Do not round your intermediate calculations. Round "ROI" answers to 2 decimal places.) River Division Stream Division ROI 3877 Residual Income $ 284,600 $ 465,801

Explanation / Answer

RI = Operating Income - (Operating Assets x Target Rate of Return)

     Target Rate of Return=7.51%

River Division:

Operating Income= 330,000+ 102,000=$432,000

Operating Assets=1=$1,000,000

RI= $432,000-($1,000,000 x 7.51%)

      =$432,000-$75,100=$356,900

Stream Division:

Operating Income= 530,000+ 102,000=$632,000

Operating Assets=1=$1,490,000

RI= $632,000-($1,490,000 x 7.51%)

      =$632,000-$111,899 =$520,101

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