Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Harbor Division has total assets (net of accumulated depreciation) of $717,000 at the beginning of year 1. Harbor also leases a machine for $15,000
Harbor Division has total assets (net of accumulated depreciation) of $717,000 at the beginning of year 1. Harbor also leases a machine for $15,000 annually. Expected divisional income in year 1 is $86,000 including $5,600 In income generated by the leased machine (after the lease payment). Harbor's cost of capital is 12 percent. Harbor can cancel the lease on the machine without penalty at any time and is considering disposing of it 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 leased machine? (Enter your answer as a percentage rounded to 1 decimal place (l.e., 32.1).) b. What would divisional ROI be for year 1 assuming Harbor disposes of the leased machine? (Enter your answer as a percentage rounded to 1 decimal place (l.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 leased machine? d. What would divisional residual income be for year 1 assuming Harbor disposes of the leased machine? a. ROI before disposal b. ROI after disposal c. Residual income before disposal d. Residual income after disposal % %
Step by Step Solution
There are 3 Steps involved in it
Step: 1
To calculate the divisional ROI and residual income for year 1 well consider two scenarios one where ...Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started