A division is considering the acquisition of a new asset that will cost $2,640,000 and have a cash flow of $800,000 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?

YEAR Investment Base ROI Residentual Income

1 $2,640,000

2

3

4