Refer to the facts in Problem 1433 Assume that Pitts performance measurement and bonus plans are based on residual income instead of ROI Pitt uses a cost of capital of 12 percent in computing residual income Required a What is Forbes Divisions residual income if Oscar does not acquire the new machi...

In thousands of dollars a Residual Income 3750 012 x 4000 5000 1500 1250 3000 b 3750 350 ...

Refer to the facts in Problem 1433. Assume that Pitts performance measurement and bonus plans are based

Question:

Refer to the facts in Problem 14–33. Assume that Pitt’s performance measurement and bonus plans are based on residual income instead of ROI. Pitt uses a of 12 percent in computing residual income.
Required
a. What is Forbes Division’s residual income if Oscar does not acquire the new machine?
b. What is Forbes Division’s residual income this year if Oscar acquires the new machine?
c. If Oscar acquires the new machine and operates it according to specifications, what residual income is expected for next year?

Cost Of Capital
Cost of capital refers to the opportunity cost of making a specific investment . Cost of capital (COC) is the rate of return that a firm must earn on its project investments to maintain its market value and attract funds. COC is the required rate of...