Question
What is the divisional ROI if the asset is leased The Plastics Division of Minock Manufacturing currently earns $2.86 million and has divisional assets Of
What is the divisional ROI if the asset is leased
The Plastics Division of Minock Manufacturing currently earns $2.86 million and has divisional assets Of $26 million. The division manager is considering the acquisition of a new asset that will add to profit. The investment has a cost of $5,508,000 and will have a yearly cash flow of $1,469,000 The asset will be depreciated using the straight-line method over a five-year life and is expected to have no salvage value. Divisional performance iS measured using ROI with beginning-of-year net book values in the denominator. The company's cost of Capital is 7 percent. Ignore taxes. The division manager learns that there is an option to lease the asset on a year-to- year lease for $1,180,000 per year. All depreciation and other tax benefits would accrue to the lessor. Required: What is the divisional ROI if the asset is leased? Note: Enter your answer as a percentage rounded to 1 decimal place (i.e., 32.1).
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