ROI versus Residual Income (2.0.2): A division is considering acquisition of a new asset. The asset will cost $160,000 and have a cash flow of $70,000 per year for each of the five years of its life. Depreciation is computed on a straight-line basis with no salvage value.

Required:

a. What is the ROI for each year of the asset's life if the division uses beginning-of- year asset balances, net book value for the computation?

b. What is the residual income each year if the cost of capital is 25 percent?