A division is considering the acquisition of a new asset that will cost $2,860,000 and have a cash flow of $700,000 per year for each of the four years of its life. Depreciation is computed on a straight-line basis with no salvage value. Ignore taxes.

Required:

a. & b.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? What is the residual income each year if the cost of capital is 8 percent?(Enter "ROI" answers as a percentage rounded to 1 decimal place (i.e., 32.1). Negative amounts should be indicated by a minus sign.)

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Investment Year ROI Base 1 $ 2,860,000 % 10 2 % 3 4 % % Residual Income Investment Year ROI Base 1 $ 2,860,000 % 10 2 % 3 4 % % Residual Income

Answer rating: 100% (QA)

To calculate the Return on Investment ROI for each year and the Residual Income we need to use the f... View the full answer