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The Street Division of Labrosse Logistics just started operations. It purchased depreciable assets costing $43 million and having a four-year expected life, after which the
The Street Division of Labrosse Logistics just started operations. It purchased depreciable assets costing $43 million and having a four-year expected life, after which the assets can be salvaged for $8.6 million. In addition, the division has $43 million in assets that are not depreciable. After four years, the division will have $43 million available from these nondepreciable assets. This means that the division has invested $86 million in assets with a salvage value of $51.6 million. Annual operating cash flows are $19 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 the company uses an 15 percent cost of capital. Required: Compute residual income, using net book value for each year. Compute residual income, using gross book value for each year
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