Veach Division has total assets (net of accumulated depreciation) of $462,000 at the beginning of year 1. One of the assets is a machine that has a net book value of $42,000. Expected divisional income in year 1 is $55,440 including $2,940 in income generated by the machine (after depreciation). Veach's cost of capital is 10 percent. Veach is considering disposing of the asset today (the beginning of year 1). Required: a. Veach computes ROI using beginning-of-the-year net assets. What will the divisional ROI be for year 1 assuming Veach retains the asset? b. What would divisional ROI be for year 1 assuming Veach disposes of the asset for its book value and there is no gain or loss on the sole?
Veach Division has total assets (net of accumulated depreciation) of $462,000 at the beginning of year 1. One of the assets is a machine that has a net book value of $42,000. Expected divisional income in year 1 is $55,440 including $2,940 in income generated by the machine (after depreciation). Veach's cost of capital is 10 percent. Veach is considering disposing of the asset today (the beginning of year 1). Required: a. Veach computes ROI using beginning-of-the-year net assets. What will the divisional ROI be for year 1 assuming Veach retains the asset? b. What would divisional ROI be for year 1 assuming Veach disposes of the asset for its book value and there is no gain or loss on the sole?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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A 10.
Transcribed Image Text:Veach Division has total assets (net of accumulated depreciation) of $462,000 at the beginning of year 1. One of the assets is a
machine that has a net book value of $42,000. Expected divisional income in year 1 is $55,440 including $2,940 in income generated
by the machine (after depreciation). Veach's cost of capital is 10 percent. Veach is considering disposing of the asset today (the
beginning of year 1).
Required:
a. Veach computes ROI using beginning-of-the-year net assets. What will the divisional ROI be for year 1 assuming Veach retains the
asset?
b. What would divisional ROI be for year 1 assuming Veach disposes of the asset for its book value and there is no gain or loss on the
sale?
Note: Enter your answer as a percentage rounded to 1 decimal place (i.e., 32.1).
c. Veach computes residual income using beginning-of-the-year net assets. What will the divisional residual income be for year 1
assuming Veach retains the asset?
d. What would divisional residual income be for year 1 assuming Veach disposes of the asset for its book value and there is no gain or
loss on the sale?
a. ROI before disposal
b. ROI after disposal
c. Residual income before disposal
d. Residual income after disposal
%
%
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