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Upper Division of Lower Company acquired an asset with a cost of $580,000 and a four-year life. The cash flows from the asset, considering the
Upper Division of Lower Company acquired an asset with a cost of $580,000 and a four-year life. The cash flows from the asset, considering the effects of infiation, were scheduled as follows YearCash Fw 200,000 255,000 280,000 The cost of the asset is expected to increase at a rate of 20 percent per year, compounded each year. Performance measures are based on beginning-of-year gross book values for the investment base. Ignore taxes. Required: a. What is the ROl for each year of the asset's life, using a historical cost approach? (Enter your answers as a percentage rounded to 1 decimal place (i.e., 32.1).) ROI Year 1 Year 2 Yoar 3 Year 4 b. What is the ROI for each year of the asset's life if bolh the investment base and depreciation are determined by the current cost of the asset at the start of each year? (Enter your answers as a percentage rounded to 1 decimal place (i.e., 32.1)) ROI Year 1 Year 2 Year 3 Year 4
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