Refer to the facts in Exercise 14-34, but assume that Harbor has been leasing the machine for $12,000 annually. Assume also that the machine generates income of $5,400 annually after the lease payment. Harbor can cancel the lease on the machine without penalty at any time.

Required
a. Harbor computes ROI using beginning-of-the-year net assets. What will the divisional ROI be for year 1 assuming Harbor retains the asset?
b. What would divisional ROI be for year 1 assuming Harbor disposes of the asset?
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 asset?
d. What would divisional residual income be for year 1 assuming Harbor disposes of the asset for its book value (there is no gain or loss on the sale)?

Data From Exercise 14-34:

Harbor Division has total assets (net of accumulated depreciation) of $660,000 at the beginning of year 1. One of the assets is a machine that has a net book value of $60,000. Expected divisional income in year 1 is $92,400 including $5,400 in income generated by the machine (after depreciation). Harbor’s cost of capital is 12 percent. Harbor is considering disposing of the asset today (the beginning of year 1).