A division is considering the acquisition of a new asset that will cost $2,800,000 and have a cash flow of $760,000 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.
YEAR | INVESTMENT BASE | ROI(%) | RESIDUAL INCOME |
1 | $2,800,000 | ||
2 | |||
3 | |||
4 |
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.)
A division is considering the acquisition of a new asset that will cost $2,800,000 and have...
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