The Plastics Division of Minock Manufacturing currently earns $3.22 million and has divisional assets of $23 million. The divis manager is considering the acquisition of a new asset that will add to profit. The investment has a cost of $5,454,000 and will yearly cash flow of $1,455,500. The asset will be depreciated using the straight-line method over a five-year life and is expect have no salvage value. Divisional performance is measured using ROI with beginning-of-year net book values in the denomin 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 % %
The Plastics Division of Minock Manufacturing currently earns $3.22 million and has divisional assets of $23 million. The divis manager is considering the acquisition of a new asset that will add to profit. The investment has a cost of $5,454,000 and will yearly cash flow of $1,455,500. The asset will be depreciated using the straight-line method over a five-year life and is expect have no salvage value. Divisional performance is measured using ROI with beginning-of-year net book values in the denomin 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 % %
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:The Plastics Division of Minock Manufacturing currently earns $3.22 million and has divisional assets of $23 million. The divis
manager is considering the acquisition of a new asset that will add to profit. The investment has a cost of $5,454,000 and will
yearly cash flow of $1,455,500. The asset will be depreciated using the straight-line method over a five-year life and is expect
have no salvage value. Divisional performance is measured using ROI with beginning-of-year net book values in the denomin
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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