Required: a. Harbor computes ROI using beginning-of-the-year net assets. What will the divislonal ROI be for year 1 assuming Harbor retains the leased machine? (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 Harbor disposes of the leased machine? (Enter your answer as a percentage rounded to 1 decimal place (i.e., 32.1).) 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?

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Harbor Division has total assets (net of accumulated depreciation) of $645,000 at the beginning of year 1. Harbor also leases a
machine for $22,000 annually. Expected divisional income in year 1 is $84,000 including $5,400 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 divislonal ROI be for year 1 assuming Harbor retains the
leased machine? (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 Harbor disposes of the leased machine? (Enter your answer as a percentage
rounded to 1 decimal place (i.e., 32.1).)
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?
a. ROI before disposal
%
b. ROI after disposal
c. Residual income before disposal
d. Residual income after disposal
Transcribed Image Text:Harbor Division has total assets (net of accumulated depreciation) of $645,000 at the beginning of year 1. Harbor also leases a machine for $22,000 annually. Expected divisional income in year 1 is $84,000 including $5,400 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 divislonal ROI be for year 1 assuming Harbor retains the leased machine? (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 Harbor disposes of the leased machine? (Enter your answer as a percentage rounded to 1 decimal place (i.e., 32.1).) 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? a. ROI before disposal % b. ROI after disposal c. Residual income before disposal d. Residual income after disposal
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