9.

One division of the Marvin Educational Enterprises has depreciable assets costing $4,120,000. The cash flows from these assets for the past three years have been:

Year		Cash flows
1		$	1,380,000
2		$	1,448,000
3		$	1,632,000

The current (i.e., replacement) costs of these assets were expected to increase 25% each year. Marvin used the straight-line depreciation method; the estimated useful life is 10-years with nosalvage 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 15% and Marvin uses historical costs and gross book values to compute residual income?

	Year 1			Year 2			Year 3
A.	$	350,000		$	418,000		$	602,000
B.	$	206,000		$	206,000		$	206,000
C.	$	345,000		$	362,000		$	408,000
D.	$	345,000		$	418,000		$	244,800

Option A

Option B

Option C

Option D