Harbor Division has total assets (net of accumulated depreciation) of $760,000 at the beginning of year 1. One of the assets is a machine that has a net book value of $63,000. Expected divisional income in year 1 is $85,000 including $7,500 in income generated by the machine (after depreciation). Harbors 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