Q14-25

Ullll Ulvlsion Division South Division Division operating profit 6,000,000 40,000,000 Division investment 0,000,000 320,000,000 capital for the company is 8 percent. Ignore taxes. lomons measures performance using ROI, which division had the better performance? ns measures performance using economic value added, which division had the ance? (The divisions have no current liabilities. uld your evaluation change if the company's cost of capital were 16 percent? Impact of New Asset on Performance Measures Division current earns and has divisional assets of $3.9 million. The divi manager considering the acquisition of a new asset that will add to profit. The invest- ment has a cost of $675,000 and will have a yearly cash flow of S168,000. The asset will be using the straight-line method over a six-year life and is expected to have no salvage value. Divisional performance is measured using ROI with beginning-of-year net alues in the denominator. The company's cost of capital is 15 percent Ignore taxes. What is the divisional ROI before acquisition of the new asset? What is the divisional ROI in the first year after acquisition of the new asset? 26. Impact of Leasing on Performance Measures Refer to the data in Exercise 14-25. The division manager learns that he has the option to lease the asset on a year-to-year lease for $148,000 per year. All depreciation and other tax benefit uld accrue to the lessor. What is the divisional ROI if the asset is leased? 7. Residual Income Measures and New Project Consideration Refer to the information in Exercises 14-25 and 14-26 What is the division's residual income before considering the project? hat is the division's residual income if the asset is purchased? at is the division's residual income if the asset is leased? Impact of an Asset Disposal on Performance Measures total assets (net of accumulated depreciation) of $3,300,000 at th an Division has One that has a net book value of $300,000 xpected of the assets is a machine generated by th divisional income 1 is $495,000 including $42,000 in income is considern in year is12 Noonan quired of the epreciation) beginning of year 1) set today (the