Refer to the facts in Exercise 14-27, but assume that Noonan has been leasing the machine for $40,000 annually. Assume also that the machine generates income of $28,000 annually after the lease payment. Noonan can cancel the lease on the machine without penalty at any time.
Required
a. Noonan computes ROI using beginning-of-the-year net assets. What will the divisional ROI be for year 1 assuming Noonan retains the asset?
b. What would divisional ROI be for year 1 assuming Noonan disposes of the asset?
c. Noonan computes residual income using beginning-of-the-year net assets. What will the divisional residual income be for year 1 assuming Noonan retains the asset?
d. What would divisional residual income be for year 1 assuming Noonan disposes of the asset for its book value (there is no gain or loss on the sale)?