QUESTION 33

1. Harbor Division has total assets (net of accumulated depreciation) of $1,000,000 at the beginning of year 1. Expected divisional income in year 1 is $120,000. The investment base is net assets at the beginning of the year.

   Harbor has used Asset J. Its current book value at the start of the year is $200,000. Each year it is expected to generate $25,000 income ($45,000 before depreciation less $20,000 depreciation) per year.

   Harbor is considering selling Asset J and getting JR. JR is expected to generate $30,000 income ($70,000 before depreciation less $40,000 depreciation) annually. JR costs $180,000 to buy.

   Harbor is also considering buying Asset K. K is expected to generate $50,000 income ($90,000 before depreciation less $40,000 depreciation) per year. K costs $420,000 to buy.

   Assume that the following multiple actions are taken.

   * selling J at its book value at the start of year1

   * buying JR, all at the start of year 1

   * buying K immediately after the start of year 1 and selling it immediately before the year-end at

   its year-end book value

   The ROI of Harbor for year 1 is closest to:

   	A.	17%
   	B.	15%
   	C.	18%
   	D.	16%