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



The company’s hurdle rate is 6.51 percent.
Required:
1. 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%.))
River Division  Stream Division  
ROI  %  % 
Residual Income (Loss) 
2. Recalculate ROI and residual income for each division for each independent situation that follows: (Enter your ROI answers as a percentage rounded to two decimal places, (i.e., 0.1234 should be entered as 12.34%.))
a. Operating income increases by 9 percent.
River Division  Stream Division  
ROI  %  % 
Residual Income (Loss) 
b. Operating income decreases by 10 percent.
River Division  Stream Division  
ROI  %  % 
Residual Income (Loss) 
c. The company invests $246,000 in each division, an amount that generates $101,000 additional income per division.
River Division  Stream Division  
ROI  %  % 
Residual Income (Loss) 
d. Coolbrook changes its hurdle rate to 4.51
percent.
River Division  Stream Division  
ROI  %  % 
Residual Income (Loss) 
1. Calculate return on investment (ROI) and residual income for each division for last year
River Division 
Stream Division 

ROI 
28.72% 
33.10% 
Residual Income (Loss) 
$242041 
$ 412095 
ROI
River Division = [ 313000 / 1090000 ] x 100 = 28.72%
Stream Division = [ 513000 / 1550000 ] x 100 = 33.10%
Residual Income (Loss)
River Division = 313000 – [ 1090000 x 6.51%] = $242041
Stream Division = 513000 – [ 1550000 x 6.51% ] = $ 412095
2(a). Recalculate ROI and residual income for each division for each independent situation that Operating income increases by 9 percent
River Division 
Stream Division 

ROI 
31.30% 
36.08% 
Residual Income (Loss) 
$ 270211 
$ 4582655 
ROI
River Division = [ (313000x1.09) / 1090000 ] x 100 = 31.30%
Stream Division = [ (513000x1.09) / 1550000 ] x 100 = 36.08%
Residual Income (Loss)
River Division = (313000x1.09) – [ 1090000 x 6.51%] = $ 270211
Stream Division = (513000x1.09) – [ 1550000 x 6.51% ] = $ 4582655
2(b)Recalculate ROI and residual income for each division for each independent situation that Operating income decreases by 10 percent
River Division 
Stream Division 

ROI 
25.84% 
29.79% 
Residual Income (Loss) 
$ 210741 
$ 360795 
ROI
River Division = [ (313000x0.90) / 1090000 ] x 100 = 25.84%
Stream Division = [ (513000x0.90) / 1550000 ] x 100 = 29.79%
Residual Income (Loss)
River Division = (313000x0.90) – [ 1090000 x 6.51%] = $ 210741
Stream Division = (513000x0.90) – [ 1550000 x 6.51% ] = $ 360795
2(c)Recalculate ROI and residual income for each division for each independent situation that The company invests $246,000 in each division, an amount that generates $101,000 additional income per division
River Division 
Stream Division 

ROI 
30.99% 
34.19% 
Residual Income (Loss) 
$ 327026 
$497080 
ROI
River Division = [ (313000+101000) / (1090000+246000) ] x 100 = 30.99%
Stream Division = [ (513000+101000) / (1550000+246000) ] x 100 = 34.19%
Residual Income (Loss)
River Division = (313000+101000) – [ (1090000+246000) x 6.51%]
= $ 327026
Stream Division = (513000+101000) – [ (1550000+246000)x 6.51% ]
= $497080
2(d). Recalculate ROI and residual income for each division for each independent situation that Coolbrook changes its hurdle rate to 4.51 percent
River Division 
Stream Division 

ROI 
28.72% 
33.10% 
Residual Income (Loss) 
$ 263841 
$ 443095 
ROI
River Division = [ 313000 / 1090000 ] x 100 = 28.72%
Stream Division = [ 513000 / 1550000 ] x 100 = 33.10%
Residual Income (Loss)
River Division = 313000 – [ 1090000 x 4.51%] = $ 263841
Stream Division = 513000 – [ 1550000 x 4.51% ] = $ 443095
Get Answers For Free
Most questions answered within 1 hours.