Heartland Company’s Cleveland Division manager is considering the acquisition of a new asset that will increase the division’s profit. The division already earns $390,000 on assets of $1.3 million. The company’s cost of capital is 20 percent. The new investment has a cost of $225,000 and will have a yearly cash flow of $84,000. The asset will be depreciated using the straight-line method over a six-year life and is expected to have no salvage value. Division performance is measured using ROI with beginning-of-year net book values in the denominator.

Required

a. What is the division ROI before acquisition of the new asset?

b. What is the division ROI in the first year after acquisition of the new asset?