What is the divisions residual income before considering

Assignment Help Financial Accounting

Reference no: EM13747214

Ocean Division currently earns $780,000 and has divisional assets of $3.9 million. The division manager is considering the acquisition of a new asset that will add to profit. The investment has a cost of $675,000 and will have a yearly cash flow of $168,000. The asset will be depreciated 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 book values in the denominator. The company's cost of capital is 15 percent. Ignore taxes. 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 benefits would accrue to the lessor. Required: (a) What is the division's residual income before considering the project? (Enter your answers in dollars and not in millions of dollars.) (b) What is the division's residual income if the asset is purchased? (Enter your answers in dollars and not in millions of dollars.) (c) What is the division's residual income if the asset is leased?

Reference no: EM13747214

Questions Cloud

Advantages of international diversification : Determine why, given the advantages of international diversification, some firms choose not to expand internationally. Provide specific examples to support your response.

What are the firms accounts receivables turnover : Blue Air Inc., has net sales of $767,000 and accounts receivables of $162,000. What are the firm's accounts receivables turnover?

What is archwares net income : Archware Systems has total assets of $35.594 billion, total debt of $9.678 billion, and net sales of $23.300 billion. Their net profit margin for the year was 0.23, while the operating profit margin was 30 percent. What is Archware’s net income? (Ans..

Advanced financial accounting : Advanced Financial Accounting (10th Ed.) Christensen: Chapter 4 (Problem 4-33) Textbook solutions shows (Step 1 of 2) Income from subsidiary (1st entry) $22,000. I keep coming up with $24,000 What accounts and numbers are used to get the $22,000 figu..

What is the divisions residual income before considering : Ocean Division currently earns $780,000 and has divisional assets of $3.9 million. The division manager is considering the acquisition of a new asset that will add to profit. The investment has a cost of $675,000 and will have a yearly cash flow of $..

What is timber ridges net profit margin : The Timber Ridge Company has the following relationships: Sales/Total assets = 3.12; ROA = 0.0900 what is Timber Ridge’s net profit margin?

How does locke describe the state of nature : How does Locke describe the `State of Nature'? According to Locke, why do men desire to leave a state of nature and enter into a civil society'?

Compare blood types and the basis for abo : Describe the three major types of cells found in blood and their respective functions. Compare blood types and the basis for ABO and Rh incompatibilities

Type of intangible property and propose strategy : The licensing of intangible property is a commonplace occurrence in foreign countries. Choose any type of intangible property and propose a strategy to minimize or eliminate the tax impact of licensing.

User Account

All Pages