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Noonan Division has total assets (net of accumulated depreciation) of $2,400,000 at the beginning... Noonan Division...

Noonan Division has total assets (net of accumulated depreciation) of $2,400,000 at the beginning... Noonan Division has total assets (net of accumulated depreciation) of $2,400,000 at the beginning of year 1. One of the assets is a machine that has a net book value of $290,000. Expected divisional income in year 1 is $430,000 including $23,000 in income generated by the machine (after depreciation). Noonan’s cost of capital is 10 percent. Noonan is considering disposing of the asset today (the beginning of year 1). Required: (a) Noonan computes ROI using beginning-of-the-year net assets. What will the divisional ROI be for year 1 assuming Noonan retains the asset? (Round your answer to 1 decimal place.) (b) What would divisional ROI be for year 1 assuming Noonan disposes of the asset for its book value (there is no gain or loss on the sale)? (Round your answer to 1 decimal place.) (c) Noonan computes residual income using beginning-of-the-year net assets. What will the divisional residual income be for year 1 assuming Noonan retains the asset? (Round your answer to the nearest dollar amount.) (d) What would divisional residual income be for year 1 assuming Noonan disposes of the asset for its book value (there is no gain or loss on the sale)? (Round your answer to the nearest dollar amount.) (a) Noonan computes ROI using beginning-of-the-year net assets. What will the divisional ROI be for year 1 assuming Noonan retains the asset? (Round your answer to 1 decimal place.) NOT 16.3 (b) What would divisional ROI be for year 1 assuming Noonan disposes of the asset for its book value (there is no gain or loss on the sale)? (Round your answer to 1 decimal place.) NOT 17.5 (c) Noonan computes residual income using beginning-of-the-year net assets. What will the divisional residual income be for year 1 assuming Noonan retains the asset? (Round your answer to the nearest dollar amount.) NOT 430,000 (d) What would divisional residual income be for year 1 assuming Noonan disposes of the asset for its book value (there is no gain or loss on the sale)? (Round your answer to the nearest dollar amount.) NOT 407,000

Solutions

Expert Solution

Total assets at beginning of the year $2,400,000
Book Value of machine $290,000
1(a) Divisional ROI for year 1if the asset is retained
A Total assets at beginning of the year 1 $2,400,000
B Divisional Income in the year 1 $430,000
C=B/A Divisional ROI for year 1if the asset is retained 0.179166667
Divisional ROI for year 1if the asset is retained(percentage) 17.9%
(b) Divisional ROI for year 1if the asset is disposed off at book value
D Total asset at beginning of year if asset is disposed off $2,110,000 (2400000-290000)
E Divisional Income in year 1 if the asset is disposed off $        407,000 (430000-23000)
F=E/D Divisional ROI for year 1if the asset is disposed off 0.192890995
Divisional ROI for year 1if the asset is disposed off (percentage) 19.3%
.(c) Computation of residual income if asset is retained
A Total assets at beginning of the year 1 $2,400,000
B Cost of Capital=10%= 0.1
C=A*B Required minimum income $240,000
D Actual income if the asset is retained $430,000
E=D-C Residual income if asset is retained $190,000
(d) Computation of residual income if asset is disposed off
A Total assets at beginning of the year 1(if asset is disposed off) $2,110,000
B Cost of Capital=10%= 0.1
C=A*B Required minimum income $211,000
D Actual income if the asset is disposed off $        407,000
E=D-C Residual income if asset is disposed off $        196,000

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