A division is considering the acquisition of a new asset that will cost $2,520,000 and have a cash flow of $700,000 per year for each of the four years of its life. Depreciation is computed on a straight-line basis with no salvage value. Ignore taxes. Required: a. & b. What is the ROI for each year of the asset's life if the division uses beginning-of-year asset balances and net book value for the computation? What is the residual income each year if the cost of capital is 8 percent? (Enter "ROI" answers as a percentage rounded to 1 decimal place (i.e., 32.1). Negative amounts should be indicated by a minus sign.) Year 1 2 3 4 Investment Base $2,250,000 ROI % Residual Income
A division is considering the acquisition of a new asset that will cost $2,520,000 and have a cash flow of $700,000 per year for each of the four years of its life. Depreciation is computed on a straight-line basis with no salvage value. Ignore taxes. Required: a. & b. What is the ROI for each year of the asset's life if the division uses beginning-of-year asset balances and net book value for the computation? What is the residual income each year if the cost of capital is 8 percent? (Enter "ROI" answers as a percentage rounded to 1 decimal place (i.e., 32.1). Negative amounts should be indicated by a minus sign.) Year 1 2 3 4 Investment Base $2,250,000 ROI % Residual Income
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:A division is considering the acquisition of a new asset that will cost $2,520,000 and have a cash flow of $700,000 per year for each of
the four years of its life. Depreciation is computed on a straight-line basis with no salvage value. Ignore taxes.
Required:
a. & b. What is the ROI for each year of the asset's life if the division uses beginning-of-year asset balances and net book value for the
computation? What is the residual income each year if the cost of capital is 8 percent? (Enter "ROI" answers as a percentage rounded
to 1 decimal place (i.e., 32.1). Negative amounts should be indicated by a minus sign.)
Year
1
2
4
Investment Base
$2,250,000
ROI %
Residual Income
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