A division is considering the acquisition of a new asset that will cost $2,520,000 and have a cash flow of $790,000 per year for each of the four years of its life. Depreciation is computed on a straight-l basis with no salvage value. Ignore taxes. Required: a. & b. What is the ROI for each year of the asset's life if the division uses beginning-of-year asset balances and net book value for the computation? What is the residual income each year if the cost capital is 8 percent? (Enter "ROI" answers as a percentage rounded to 1 decimal place (i.e., 32.1). Negative amounts should be indicated by a minus sign.) Year Investment Base Residual ROI Income 2$ 2,520,000 1 % 2 % 3 % 4 %

FINANCIAL ACCOUNTING
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Chapter1: Financial Statements And Business Decisions
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A division is considering the acquisition of a new asset that will cost $2,520,000 and have a cash flow of $790,000 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.)
Investment
Residual
Income
Year
ROI
Base
$
2,520,000
1
%
2
%
3
%
4
%
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 $790,000 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.) Investment Residual Income Year ROI Base $ 2,520,000 1 % 2 % 3 % 4 %
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