Oscar Clemente is the manager of Forbes Division of Pitt, Inc., a manufacturer of biotech products. Forbes Division, which has $4.05 million in assets, manufactures a special testing device. At the beginning of the current year, Forbes invested $5.12 million in automated equipment for test machine assembly. The divisions expected income statement at the beginning of the year was as follows:

Sales revenue	$	16,060,000
Operating costs
Variable		2,100,000
Fixed (all cash)		7,660,000
Depreciation
New equipment		1,560,000
Other		1,330,000
Division operating profit	$	3,410,000

A sales representative from LSI Machine Company approached Oscar in October. LSI has for $4.83 million a new assembly machine that offers significant improvements over the equipment Oscar bought at the beginning of the year. The new equipment would expand division output by 10 percent while reducing cash fixed costs by 5 percent. It would be depreciated for accounting purposes over a three-year life. Depreciation would be net of the $519,000 salvage value of the new machine. The new equipment meets Pitt's 12 percent cost of capital criterion. If Oscar purchases the new machine, it must be installed prior to the end of the year. For practical purposes, though, Oscar can ignore depreciation on the new machine because it will not go into operation until the start of the next year.

The old machine, which has no salvage value, must be disposed of to make room for the new machine.

Pitt has a performance evaluation and bonus plan based on residual income. Pitt uses a cost of capital of 12 percent in computing residual income. Income includes any losses on disposal of equipment. Investment is computed based on the end-of-year balance of assets, net book value. Ignore taxes.

Required:

a. What is Forbes Divisions residual income if Oscar does not acquire the new machine? (Negative amount should be indicated by a minus sign. Enter your answer in thousands of dollars. Round your final answers to nearest whole dollar.)

b. What is Forbes Divisions residual income this year if Oscar acquires the new machine? (Negative amount should be indicated by a minus sign. Enter your answer in thousands of dollars. Round your final answers to nearest whole dollar.)

c. If Oscar acquires the new machine and operates it according to specifications, what residual income is expected for next year? (Negative amount should be indicated by a minus sign. Enter your answer in thousands of dollars. Round your final answers to nearest whole dollar.)

Oscar Clement is the manager of Forbes Division of Princ, a manufacturer of titech products. Forbes Division, which has on inst, maractures aspecting device the beginyer Forbes invested to in automated equipment for best machine assembly. The division's expected income statement at the beginning of the year was as follows: Operating Deprecation Oth Doping 10000 7400 000 1.450.000 DO 3301500 A sales representative from LSI Machine Company approached Oscar in Odober LSI as for $5.65 mon new assembly machine that others can improvements over the ment Oscar bought the begin of the year. The new equipment would expand division up by 10 percent while reducing cash feed costs by percent would be depreciated for accounting purposes over a year life. Depreciation would be note 500.000 salvage value of the new machine. The new equipment met Pes 20 percent cost of capital criterion Oscar purchases the new machine must be led prior to the end of the year. For practical purposes, though car can ignore depreciation on the new machine because it will not go into operation the start of the next year. The old machine, which has no savage value must be disposed of to make room for the new machine Pleasa performance evaluation and bonus pion based on ROI. The retum includes anyone on osa olement went is computed based on the end of year balance of assets, netbookvaleromete Required .. What is Forbes Division's ROI Oscar does not acquire the new machine? (Teter your answer as a percentage rom decimale 32:11 b. What is Forbes Division's this year Oscaroquires the new machine for your answer as a percentage rounded to decimal place ... 323) a Amazon.com Prim Put has a performance evaluation and bonus plan based on ROI. The return includes any losses on disposal of equipment. Investment is computed based on the end-of-year balance of as Required: a. What is Forbes Division's ROI I Oscar does not acquire the new machine? (Enter your answer as a percentage rounded to 1 decimal place (le 32.1).) 9021 b. What is Forbes Division's ROI this year it Oscar acquires the new machine? (Enter your answer as a percentage rounded to 1 decimal place de 32.11) ROL c. If Oscar acquires the new machine and it operates according to specifications, what ROI is expected for next year? (Enter your answer as a percentage rounded to 1 decimal place ROL References eBook & Resources 100 points Oscar Clemente is the manager of Forbes Division of Pet na manufacturer of biotech products Forbes Division, which has 10 million in manufactures a special testing device the beginning of the current you Forbes invested $5.12 million in automated ement for test machine assembly The division's expected income ment at the begiving of the year was as follows S160 Save Operating costs Variat Fach Depec New mont 2100 000 7600.000 Dion operating pro 1.500.000 10 000 $ 3.410.000 A sales representative from LSI Machine Company approached Oscar in October Las for 4.60 min a newly machine that offers significant improvements over the women Oscar bought at the beginning of the year. The new equipment would expand vision output by 10 percent while reducing cash feed costs by 5 percent. It would be depreciated for accounting purposes over a year. Depreciation would be net of the $519.000 salvage value of the new machine. The new equipment met Ps 12 percent cost of capital criterion Oscar purchases the new machine must be med prior to the end of ihe year. For practical purposes though Oscar can ignore depreciation on the new machine because it will not go into operation until the start of the next year The old machine, which has no salvage value, must be disposed of to make room for the new machine Pet has a performance evaluation and bonus plan based on reso income Pets a cost of capital of 12 percent in computing residual income income includes anyone on posar en este computed based on the end-of-year balance of assets, netbook value grores Required: a. What is Forbes Division's residual income of Oscar does not cure the new machine (Negative amount should be indicated by a mission Enter your answer in thousands of dollars. Round your tirar to renrest whole un ne end-of-year balance of assets, netbook value ignore taxes ses a cost of capital of 12 percent in computing residual income. Income includes any losses on those of Required: a. What is Forbes Division's residual income it Oscar does not acquire the new machine? (Negative amount should be indicated by a minus sign. Enter your answer in thousands of do nearest whole dollar) b. What is Forbes Division's residual income this year if Oscar acquires the new machine? (Negative amount should be indicated by a minus sign. Enter your answer in thousands of dolls nearest whole dollar) Resdun income C. If Oscar acquires the new machine and operates it according to specifications, what residual income is expected for next year? (Negative amount should be indicated by a minus sign. Enter dollars. Round your final answers to nearest whole dollar.) Rodul income