Compare Historical Cost, Net Book Value to Gross Book Value: Raiders Division of Shark Company just started

Question:

Compare Historical Cost, Net Book Value to Gross Book Value: Raiders Division of Shark Company just started operations. It purchased depreciable assets costing $1 million and having an expected life of four years, after which the assets can be salvaged for $200,000. In addition, the division has $1 million in assets that are not depreciable. After four years, the division will have $1 million available from these nondepreciable assets. In short, the division has invested $2 million in assets that will last four years, after which it will salvage $1.2 million. Annual cash operating flows are $400,000. 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 above.

Required:

a. Compute ROI, using net book value.

b. Compute ROI, using gross book value.

Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Related Book For  book-img-for-question

Cost Accounting

ISBN: 9780256069198

3rd Edition

Authors: Edward B. Deakin, Michael Maher

Question Posted: