The Street Division of Labrosse Logistics has just begun operations with the following setup:- Purchased assets costing $36 million that depreciate over four years, with a salvage value of $7.2 million.- Additional $36 million in non-depreciable assets.- Total investment in assets: $72 million, including a salvage value of $43.2 million.- Annual operating cash flows are $12 million.- Return on Investment (ROI) uses end-of-year asset values.- Depreciation is on a straight-line basis, and taxes are ignored.- Company's cost of capital: 8 percent.**Task:**Compute residual income using two methods: - Net book value for each year.- Gross book value for each year.(Note: All answers should be in thousands of dollars. Negative amounts should be indicated with a minus sign.)**Data Table:**Residual Income:- **Net Book Value:** - Year 1: ($384,000) - Year 2: $192,000 - Year 3: $768,000 - Year 4: $1,344,000- **Gross Book Value:** - Year 1: ($960,000) - Year 2: ($960,000) - Year 3: ($960,000) - Year 4: ($960,000)

Operating assetsOperating assets are the assets of the entity which are engaged in the operating…

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 $ (384,000) $ 192,000 $ 768,000 $ (960,000) $ (960,000) $ (960,000) $1,344,000 $ (960,000)

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 $ (384,000) $ 192,000 $ 768,000 $ (960,000) $ (960,000) $ (960,000) $1,344,000 $ (960,000)

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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