Question: Please help me with this question: Harbor Division has total assets (net of accumulated depreciation) of $660,000 at the beginning of year 1. One of
Please help me with this question:
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). Harbors cost of capital is 12 percent. Harbor is considering disposing of the asset 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 year 1 assuming Harbor retains the asset?
b. What would divisional ROI be for year 1 assuming Harbor disposes of the asset for its book value (there is no gain or loss on the sale)? (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 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)?
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