Coolbrook Company has the following information available for the past year: River Division Stream Division Sales revenue
Question:
Coolbrook Company has the following information available for the past year:
| River | Stream | ||
Sales revenue | $ | 1,200,000 | $ | 1,800,000 |
Cost of goods sold and operating expenses | | 900,000 | | 1,300,000 |
Net operating income | $ | 300,000 | $ | 500,000 |
Average invested assets | $ | 1,200,000 | $ | 1,800,000 |
The company’s hurdle rate is 6 percent.
Required:
1. Calculate return on investment (ROI) and residual income for each division for last year.
2. Recalculate ROI and residual income for each division for each independent situation that follows:
a. Operating income increases by 10 percent.
b. Operating income decreases by 10 percent.
c. The company invests $250,000 in each division, an amount that generates $100,000 additional income per division.
d. Coolbrook changes its hurdle rate to 10 percent.
Managerial Accounting
ISBN: 978-0078025518
2nd edition
Authors: Stacey Whitecotton, Robert Libby, Fred Phillips