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The Street Division of Labrosse Logistics just started operations. It purchased depreciable assets costing $41.0 million and having a four-year expected life, after which the assets can be salvaged for $8.2 million. In addition, the division has $41.0 million in assets that are not depreciable. After four years, the division will have $41.0 million available from these non depreciable assets. This means that the division has invested $82 million in assets with a salvage value of $49.2 million. Annual operating cash flows are $13.0 million. In computing ROI, this division uses beginning-of-year asset values in the denominator. Depreciation is computed on a straight-line basis, recognizing the salvage values noted. Ignore taxes. Required: a. & b. Compute ROI, using net book value and gross book value. Note: Enter your answers as a percentage rounded to 2 decimal place (i.e., 32.10). Year 1 Year 2 Year 3 Year 4 Net Book Value % % % % ROI Gross Book Value 5.85 % 5.85 % 5.85 % 5.85 %

The Street Division of Labrosse Logistics just started operations. It purchased depreciable assets costing $41.0 million and having a four-year expected life, after which the assets can be salvaged for $8.2 million. In addition, the division has $41.0 million in assets that are not depreciable. After four years, the division will have $41.0 million available from these non depreciable assets. This means that the division has invested $82 million in assets with a salvage value of $49.2 million. Annual operating cash flows are $13.0 million. In computing ROI, this division uses beginning-of-year asset values in the denominator. Depreciation is computed on a straight-line basis, recognizing the salvage values noted. Ignore taxes. Required: a. & b. Compute ROI, using net book value and gross book value. Note: Enter your answers as a percentage rounded to 2 decimal place (i.e., 32.10). Year 1 Year 2 Year 3 Year 4 Net Book Value % % % % ROI Gross Book Value 5.85 % 5.85 % 5.85 % 5.85 %

FINANCIAL ACCOUNTING
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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The Street Division of Labrosse Logistics just started operations. It purchased depreciable assets costing $41.0 million and having a four-year expected life, after which the assets can be salvaged for $8.2 million. In addition, the division has $41.0 million in assets that are not depreciable. After four years, the division will have $41.0 million available from these non depreciable assets. This means that the division has invested $82 million in assets with a salvage value of $49.2 million. Annual operating cash flows are $13.0 million. In computing ROI, this division uses beginning-of-year asset values in the denominator. Depreciation is computed on a straight-line basis, recognizing the salvage values noted. Ignore taxes. Required: a. & b. Compute ROI, using net book value and gross book value. Note: Enter your answers as a percentage rounded to 2 decimal place (i.e., 32.10). Year 1 Year 2 Year 3 Year 4 Net Book Value % % % % ROI Gross Book Value 5.85 % 5.85 % 5.85 % 5.85 %
Transcribed Image Text:The Street Division of Labrosse Logistics just started operations. It purchased depreciable assets costing $41.0 million and having a four-year expected life, after which the assets can be salvaged for $8.2 million. In addition, the division has $41.0 million in assets that are not depreciable. After four years, the division will have $41.0 million available from these non depreciable assets. This means that the division has invested $82 million in assets with a salvage value of $49.2 million. Annual operating cash flows are $13.0 million. In computing ROI, this division uses beginning-of-year asset values in the denominator. Depreciation is computed on a straight-line basis, recognizing the salvage values noted. Ignore taxes. Required: a. & b. Compute ROI, using net book value and gross book value. Note: Enter your answers as a percentage rounded to 2 decimal place (i.e., 32.10). Year 1 Year 2 Year 3 Year 4 Net Book Value % % % % ROI Gross Book Value 5.85 % 5.85 % 5.85 % 5.85 %
Albany Division is considering the acquisition of a new asset that will cost $540,000 and have a cash flow of $182,000 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 9.2 percent? Note: 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 $ 540,000 ROI 31.5% 47.2 % 69.6 % 100.0 % $ Residual Income 47,000
Transcribed Image Text:Albany Division is considering the acquisition of a new asset that will cost $540,000 and have a cash flow of $182,000 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 9.2 percent? Note: 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 $ 540,000 ROI 31.5% 47.2 % 69.6 % 100.0 % $ Residual Income 47,000
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