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Veach Division has total assets (net of accumulated depreciation) of $462,000 at the beginning of year 1 . One of the assets is a machine
Veach Division has total assets (net of accumulated depreciation) of $462,000 at the beginning of year 1 . One of the assets is a machine that has a net book value of $42,000. Now, assume that Veach has been leasing this machine for $7,200 annually. Expected divisional income in year 1 is $55,440 including $2,940 in income generated by the leased machine (after the lease payment). Veach's cost of capital is 10 percent. Veach can cancel the lease on the machine without penalty at any time. Required: a. Veach computes ROI using beginning-of-the-year net assets. What will the divisional ROI be for year 1 assuming Veach retains the lease on the machine? Note: Enter your answer as a percentage rounded to 1 decimal place (i.e., 32.1). b. What would divisional ROI be for year 1 assuming Veach cancels the lease on the machine? Note: Enter your answer as a percentage rounded to 1 decimal place (i.e., 32.1). c. Veach computes residual income using beginning-of-the-year net assets. What will the divisional residual income be for year 1 assuming Veach retains the lease on the machine? d. What would divisional residual income be for year 1 assuming Veach cancels the lease on the machine
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