Question
One division of the Marvin Educational Enterprises has depreciable assets costing $4,100,000. The cash flows from these assets for the past three years have been:
One division of the Marvin Educational Enterprises has depreciable assets costing $4,100,000. The cash flows from these assets for the past three years have been:
Year Cash flows
1 $ 1,271,000
2 $ 1,476,000
3 $ 1,681,000
The current (i.e., replacement) costs of these assets were expected to increase 20% each year. Marvin used the straight-line depreciation method and 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. 25.8% 25.0% 23.7%
B. 32.3% 27.8% 24.4%
C. 19.0% 21.6% 23.7%
D. 15.8% 15.0% 13.7%
Option A
Option B
Option C
Option D
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