Divisions residual income before considering the project

Assignment Help Financial Accounting

Reference no: EM13748961

Ocean Division currently earns $780,000 and has divisional assets of $3.9 million. The division manager is considering the acquisition of a new asset that will add to profit. The investment has a cost of $675,000 and will have a yearly cash flow of $168,000. The asset will be depreciated using the straight-line method over a six-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 15 percent. Ignore taxes. The division manager learns that he has the option to lease the asset on a year-to-year lease for $148,000 per year. All depreciation and other tax benefits would accrue to the lessor. Required: (a) What is the division's residual income before considering the project? (Enter your answers in dollars and not in millions of dollars.) (b) What is the division's residual income if the asset is purchased? (Enter your answers in dollars and not in millions of dollars.) (c) What is the division's residual income if the asset is leased? (Enter your answers in dollars and not in millions of dollars.

Reference no: EM13748961

Questions Cloud

Response to the e-mail : Write a 350 to 700 word response to the following e-mail:

Calculate the balance in Lonergans AAA and AEP accounts : Lonergan, Inc., a calendar year S corporation in Athens, Georgia, had a balance in AAA of $200,000 and AEP of $110,000 on December 31, 2014. During 2015, Lonergan, Inc., distributes $140,000 to its shareholders, while sustaining an ordinary loss of $..

Calculate the financial ratios for the assigned company : Calculate the financial ratios for the assigned company's financial statements, and then interpret those results against company historical data as well as industry benchmarks:

When american colonists gained independence from british : When the american colonists gained their independence from the british after the revolutionary war,the americans were faced with a problem: what kind of government should they have ?

Divisions residual income before considering the project : Ocean Division currently earns $780,000 and has divisional assets of $3.9 million. The division manager is considering the acquisition of a new asset that will add to profit. The investment has a cost of $675,000 and will have a yearly cash flow of $..

Pro forma statements of five year projections : Using the sample financial statements, create pro forma statements of five year projections that are clear, concise, and easy to read. Be sure to double check the calculations in your pro forma statements. Make assumptions that support each line i..

Provide the journal entry for the asset revaluation : S. Stephens adn J. Perez are partners in Space designs. Stephens and Perez share income equally. D Fredrick will be admitted to the partnership. Prior to teh admission, equipment was revalued downward by $18,000. Provide the journal entry for the as..

Present value-pv of multiple cash flows : Tommie Harris is considering an investment that pays 6.5 percent annually. How much must he invest today such that he will have $25,000 in seven years? (Round to the nearest dollar.)

Transaction will consist of a debit to cash : The Sneed Corporation issues 10,000 shares of $50 par value preferred stock for cash at $75 per share. The entry to record the transaction will consist of a debit to Cash for $750,000 and a credit or credits to:

User Account

All Pages