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 $49,560. 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:
Veach computes ROI using beginning-of-the-year net assets. What will the divisional ROI be for year 1 assuming Veach retains the asset?
A. 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?