The Street Division of Labrosse Logistics just started operations. It purchased depreciable assets costing $36 million and having a four-year expected life, after which the assets can be salvaged for $7.2 million. In addition, the division has $36 million in assets that are not depreciable. After four years, the division will have $36 million available from these nondepreciable assets. This means that the division has invested $72 million in assets with a salvage value of $43.2 million. Annual operating cash flows are $12 million. In computing ROI, this division uses end-of-year asset values in the denominator. Depreciation is computed on a straight-line basis, recognizing the salvage values noted. Ignore taxes. Assume that the company uses an 8 percent cost of capital. Required: a. Compute residual income, using net book value for each year. b. Compute residual income, using gross book value for each year. Note: For all the requirements, enter your answers in thousands of dollars. Negative amounts should be indicated by a minus sign. Year 1 Year 2 Year 3 Year 4 Residual Income Net Book Gross Book Value Value

The Street Division of Labrosse Logistics just started operations. It purchased depreciable assets costing $36 million and having a four-year expected life, after which the assets can be salvaged for $7.2 million. In addition, the division has $36 million in assets that are not depreciable. After four years, the division will have $36 million available from these nondepreciable assets. This means that the division has invested $72 million in assets with a salvage value of $43.2 million. Annual operating cash flows are $12 million. In computing ROI, this division uses end-of-year asset values in the denominator. Depreciation is computed on a straight-line basis, recognizing the salvage values noted. Ignore taxes. Assume that the company uses an 8 percent cost of capital. Required: a. Compute residual income, using net book value for each year. b. Compute residual income, using gross book value for each year. Note: For all the requirements, enter your answers in thousands of dollars. Negative amounts should be indicated by a minus sign. Year 1 Year 2 Year 3 Year 4 Residual Income Net Book Gross Book Value Value

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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