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Harbor Division has total assets (net of accumulated depreciation) of $770,000 at the beginning of year 1. One of the assets is a machine that
Harbor Division has total assets (net of accumulated depreciation) of $770,000 at the beginning of year 1. One of the assets is a machine that has a net book value of $57,000. Expected divisional income in year 1 is $91,000 including $4,500 in income generated by the machine (after depreciation). Harbor's cost of capital is 11 percent. Harbor is considering disposing of the asset today (the beginning of year 1). Required: a. Harbor computes ROI using beginning-of-the-year net assets. What will the divisional ROI be for year 1 assuming Harbor retains the asset? (Enter your answer as a percentage rounded to 1 decimal place (i.e., 32.1).) b. What would divisional ROI be for year 1 assuming Harbor disposes of the asset for its book value (there is no gain or loss on the sale)? (Enter your answer as a percentage rounded to 1 decimal place (i.e., 32.1).) c. Harbor computes residual income using beginning-of-the-year net assets. What will the divisional residual income be for year 1 assuming Harbor retains the asset? d. What would divisional residual income be for year 1 assuming Harbor disposes of the asset for its book value (there is no gain or loss on the sale)? % a. ROI before disposal b. ROI after disposal c. Residual income before disposal d. Residual income after disposal
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