On November 15 of this year, a sales representative for Hasegawa Machine Company approaches you. Hasegawa wants to rent to your division a new assembly machine that would be installed on December 31 for an annual rental charge of $230,000. The new equipment will enable your division to produce a higher quality product with a sales price 10 percent higher. Therefore, your division's annual revenue will be 10 percent higher. (There will be no change in variable costs.) The new machine would decrease fixed cash expenditures by 5 percent. You will have to write off the cost of the automated processing equipment this year because it has no salvage value. Equipment depreciation shown on the income statement is for the automated processing equipment.
Your bonus is determined as a percentage of your division’s operating profit before taxes.
; Equipment losses are included in the bonus and operating profit computation.
Ignore taxes and any effects on operations on the day of installation of the new machine. Assume that the data given in your expected income statement are the actual amounts for this year and next year if you keep the current equipment.
Required

a. What is the difference in this year’s divisional operating profit if the new machine is rented and installed on December 31 of this year?

b. What would be the effect on next year’s divisional operating profit if the new machine is rented and installed on December 31 of this year?

c. Would you rent the new equipment? Why or why not?