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Harbor Division has total assets (net of accumulated depreciation) of $790,000 at the beginning of year 1. One of the assets is a machine that
Harbor Division has total assets (net of accumulated depreciation) of $790,000 at the beginning of year 1. One of the assets is a machine that has a net book value of S58,000. Expected divisional income in year 1 is S91,000 including $5,800 in income generated by the machine (after depreciation). Harbor's cost of capital is 9 percent. Harbor is considering disposing of the asset today (the beginning of year1), but assume that Harbor has been leasing the machine for $24,000 annually. Assume also that the machine generates income of $5,800 annually after the lease payment. Harbor can cancel the lease on the machine without penalty at any time. Required: a. Harbor computes ROl using beginning-of-the-year net assets. What will the divisional ROl be for year 1 assuming Harbor retains the asset? (Enter your answer as a percentage rounded to 1 decimal place (i.e., 32.1).) ROI before disposal b. What would divisional ROl be for year 1 assuming Harbor disposes of the asset? (Enter your answer as a percentage rounded to 1 decimal place (i.e, 32.1)-) ROI after disposal 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? income before disposal 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)
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