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Exercise 14-40 (Algo) Impact of New Asset on Performance Measures (LO 14-2) The Plastics Division of Minock Manufacturing currently earns $2.86 million and has divisional assets of $26 million. The division manager is considering the acquisition of a new asset that will add to profit. The investment has a cost of $5,508,000 and will have a yearly cash flow of $1,469,000. The asset will be depreciated using the straight-line method over a five-year life and is expected to have no salvage value. Divisional performance is measured using ROl with beginning-of-year net book values in the denominator. The company's cost of capital is 7 percent. Ignore taxes. Required: a. What is the divisional ROI before acquisition of the new asset? b. What is the divisional ROI in the first year after acquisition of the new asset? Note: For all requirements, enter your answers as a percentage rounded to 1 decimal place (i.e., 32.1). a. ROI before acquisition b. ROI after acquisition % %

Exercise 14-40 (Algo) Impact of New Asset on Performance Measures (LO 14-2) The Plastics Division of Minock Manufacturing currently earns $2.86 million and has divisional assets of $26 million. The division manager is considering the acquisition of a new asset that will add to profit. The investment has a cost of $5,508,000 and will have a yearly cash flow of $1,469,000. The asset will be depreciated using the straight-line method over a five-year life and is expected to have no salvage value. Divisional performance is measured using ROl with beginning-of-year net book values in the denominator. The company's cost of capital is 7 percent. Ignore taxes. Required: a. What is the divisional ROI before acquisition of the new asset? b. What is the divisional ROI in the first year after acquisition of the new asset? Note: For all requirements, enter your answers as a percentage rounded to 1 decimal place (i.e., 32.1). a. ROI before acquisition b. ROI after acquisition % %

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Exercise 14-40 (Algo) Impact of New Asset on Performance Measures (LO 14-2) The Plastics Division of Minock Manufacturing currently earns $2.86 million and has divisional assets of $26 million. The division manager is considering the acquisition of a new asset that will add to profit. The investment has a cost of $5,508,000 and will have a yearly cash flow of $1,469,000. The asset will be depreciated using the straight-line method over a five-year life and is expected to have no salvage value. Divisional performance is measured using ROI with beginning-of-year net book values in the denominator. The company's cost of capital is 7 percent. Ignore taxes. Required: a. What is the divisional ROI before acquisition of the new asset? b. What is the divisional ROI in the first year after acquisition of the new asset? Note: For all requirements, enter your answers as a percentage rounded to 1 decimal place (i.e., 32.1). a. ROI before acquisition b. ROI after acquisition %
Transcribed Image Text:Exercise 14-40 (Algo) Impact of New Asset on Performance Measures (LO 14-2) The Plastics Division of Minock Manufacturing currently earns $2.86 million and has divisional assets of $26 million. The division manager is considering the acquisition of a new asset that will add to profit. The investment has a cost of $5,508,000 and will have a yearly cash flow of $1,469,000. The asset will be depreciated using the straight-line method over a five-year life and is expected to have no salvage value. Divisional performance is measured using ROI with beginning-of-year net book values in the denominator. The company's cost of capital is 7 percent. Ignore taxes. Required: a. What is the divisional ROI before acquisition of the new asset? b. What is the divisional ROI in the first year after acquisition of the new asset? Note: For all requirements, enter your answers as a percentage rounded to 1 decimal place (i.e., 32.1). a. ROI before acquisition b. ROI after acquisition %
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