A division is considering the acquisition of a new asset that will cost \($720,000\) and have a cash flow of \($280,000\) per year for each of the five years of its life. Depreciation is computed on a straight-line basis with no salvage value. Ignore taxes.

Required

a. 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?

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