Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

The Ste. Marie Division of Pacific Media Corporation just started operations. It purchased depreciable assets costing $45 million and having a four-year expected life, after

The Ste. Marie Division of Pacific Media Corporation just started operations. It purchased depreciable assets costing $45 million and having a four-year expected life, after which the assets can be salvaged for $9 million. In addition, the division has $45 million in assets that are not depreciable. After four years, the division will have $45 million available from these nondepreciable assets. This means that the division has invested $90 million in assets with a salvage value of $54 million. Annual depreciation is $9 million. Annual operating cash flows are $30 million. In computing ROI, this division uses end-of-year asset values in the denominator. Depreciation is computed on a straight-line basis, recognizing the salvage values noted. Ignore taxes. Assume that all cash flows increase 10 percent at the end of each year. This has the following effect on the assets replacement cost and annual cash flows. End of Year Replacement Cost Annual Cash Flow 1 $ 90,000,000 1.1 = $ 99,000,000 $ 30,000,000 1.1 = $ 33,000,000 2 $ 99,000,000 1.1 = $ 108,900,000 $ 33,000,000 1.1 = $ 36,300,000 3 Etc. Etc. 4 Depreciation is as follows. Year For the Year "Accumulated" 1 $ 9,900,000 $ 9,900,000 (= 10% $99,000,000) 2 10,890,000 21,780,000 (= 20% 108,900,000) 3 11,979,000 35,937,000 4 13,176,900 52,707,600 Note that "accumulated" depreciation is 10 percent of the gross book value of depreciable assets after one year, 20 percent after two years, and so forth. Required: a. & b. Compute ROI using historical cost, net book value and gross book value. c. & d. Compute ROI using current cost, net book value and gross book value.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Measuring ROI In Learning And Development Case Studies From Global Organizations

Authors: Patricia Pulliam Phillips, Jack J. Phillips

1st Edition

1562867997, 9781562867997

More Books

Students also viewed these Accounting questions

Question

=+can you write alternative statements that are better?

Answered: 1 week ago