Solution-What will the divisional residual income be for

What will the divisional residual income be for year

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Reference no: EM132714853

Problem - Harbor Division has total assets (net of accumulated depreciation) of $635,000 at the beginning of year 1. Harbor also leases a machine for $15,000 annually. Expected divisional income in year1 is $86,000 including $5,800 in income generated by the leased machine (after the lease payment). Harbor's cost of capital is 11 percent. Harbor can cancel the lease on the machine without penalty at any time and is considering disposing of it today (the beginning of year 1).

Required -

a. Harbor computes ROI using beginning-of-the-year net assets. What will the divisional ROI be for year1 assuming Harbor retains the leased machine?

b. What would divisional ROI be for year 1 assuming Harbor disposes of the leased machine?

c. Harbor computes residual income using beginning-of-the-year net assets. What will the divisional residual income be for year 1 assuming Harbor retains the leased machine?

d. What would divisional residual income be for year 1 assuming Harbor disposes of the leased machine?

Reference no: EM132714853

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What will the divisional residual income be for year

Reference no: EM132714853

Reference no: EM132714853

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