13. One division of the Marvin Educational Enterprises has depreciable assets costing $4,130,000. The cash flows from these assets for the past three years have been:

Year		Cash flows
1		$	1,395,000
2		$	1,452,000
3		$	1,633,000

The current (i.e., replacement) costs of these assets were expected to increase 20% each year. Marvin used the straight-line depreciation method; the estimated useful life is 10-years with no salvage value. For return on investment (ROI) calculations, Marvin uses end-of-year balances. What is the residual income for each year, assuming the cost of capital is 12% and Marvin uses historical costs and net book values to compute residual income?

	Year 1			Year 2			Year 3
A.	$	167,400		$	174,240		$	195,960
B.	$	535,960		$	642,520		$	873,080
C.	$	279,000		$	290,400		$	326,600
D.	$	535,960		$	585,520		$	635,080

Option A

Option B

Option C

Option D

14. Frocks and Gowns, Inc., has two divisions, Day Wear and Night Wear. The Day Wear Division has an investment base of $740,000 and produces (and sells) 105,000 units of Collars at a market price of $12.50 per unit. Variable costs total $5.30 per unit, and fixed charges are $4.50 per unit (based on a capacity of 125,000 units). The Night Wear Division wants to purchase 24,000 units of Collars from The Day Wear Division. However, the Night Wear Division is only willing to pay $9.00 per unit. What is the contribution margin for the Day Wear Division if it transfers 24,000 units to the Night Wear Division at $9.00 per unit?

$945,000.

$816,000.

$283,500.

$756,000.

15. One division of the Marvin Educational Enterprises has depreciable assets costing $4,900,000. The cash flows from these assets for the past three years have been:

Year		Cash flows
1		$	1,911,000
2		$	2,156,000
3		$	2,205,000

The current (i.e., replacement) costs of these assets were expected to increase 20% each year. Marvin used the straight-line depreciation method; the estimated useful life is 10-years with no salvage value. For return on investment (ROI) calculations, Marvin uses end-of-year balances. What is the ROI using current costs and gross book value?

	Year 1			Year 2			Year 3
A.	32.5	%		30.6	%		26.0	%
B.	25.6	%		22.7	%		22.2	%
C.	27.0	%		29.6	%		27.7	%
D.	22.5	%		20.6	%		16.0	%

Option A

Option B

Option C

Option D