Question
Noonan Division has total assets (net of accumulated depreciation) of $2,400,000 at the beginning of year 1. One of the assets is a machine that
Noonan Division has total assets (net of accumulated depreciation) of $2,400,000 at the beginning of year 1. One of the assets is a machine that has a net book value of $290,000. Expected divisional income in year 1 is $430,000 including $23,000 in income generated by the machine (after depreciation). Noonans cost of capital is 10 percent. Noonan is considering disposing of the asset today (the beginning of year 1). Required: (a) Noonan computes ROI using beginning-of-the-year net assets. What will the divisional ROI be for year 1 assuming Noonan retains the asset? (Round your answer to 1 decimal place.) (b) What would divisional ROI be for year 1 assuming Noonan disposes of the asset for its book value (there is no gain or loss on the sale)? (Round your answer to 1 decimal place.) (c) Noonan computes residual income using beginning-of-the-year net assets. What will the divisional residual income be for year 1 assuming Noonan retains the asset? (Round your answer to the nearest dollar amount.) (d) What would divisional residual income be for year 1 assuming Noonan disposes of the asset for its book value (there is no gain or loss on the sale)? (Round your answer to the nearest dollar amount.)
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