The Plastics Division of Minock Manufacturing currently earns $2.87 million and has divisional assets of...
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The Plastics Division of Minock Manufacturing currently earns $ million and has divisional assets of $ million. The division manager is considering the acquisition of a new asset that will add to profit. The investment has a cost of $ and will have a yearly cash flow of $ The asset will be depreciated using the straightline method over a fiveyear life and is expected to have no salvage value. Divisional performance is measured using ROI with beginningofyear net book values in the denominator. The companys cost of capital is percent. Ignore taxes. The division manager learns that there is an option to lease the asset on a yeartoyear lease for $ per year. All depreciation and other tax benefits would accrue to the lessor.
Required:
What is the divisional ROI if the asset is leased?
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