The Ste. Marie Division of Pacific Media Corporation just started operations. It
ID: 2397189 • Letter: T
Question
The Ste. Marie Division of Pacific Media Corporation just started operations. It purchased depreciable assets costing $39 million and having a four-year expected life, after which the assets can be salvaged for $7.8 million. In addition, the division has $39 million in assets that are not depreciable. After four years, the division will have $39 million available from these nondepreciable assets. This means that the division has invested $78 million in assets with a salvage value of $46.8 million. Annual depreciation is $7.8 million. Annual operating cash flows are $20 million. Depreciation is computed on a straight-line basis, recognizing the salvage values noted. Ignore taxes. Assume that the division uses beginning-of-year asset values in the denominator for computing ROI.
Required:
a. & b. Compute ROI, using net book value and gross book value
The Ste. Marie Division of Pacific Media Corporation just started operations. It purchased depreciable assets costing $39 million and having a four-year expected life, after which the assets can be salvaged for $7.8 million. In addition, the division has $39 million in assets that are not depreciable. After four years, the division will have $39 million available from these nondepreciable assets. This means that the division has invested $78 million in assets with a salvage value of $46.8 million. Annual depreciation is $7.8 million. Annual operating cash flows are $20 million. Depreciation is computed on a straight-line basis, recognizing the salvage values noted. Ignore taxes. Assume that the division uses beginning-of-year asset values in the denominator for computing ROI.
Required:
a. & b. Compute ROI, using net book value and gross book value
ROI Net Book Value Gross Book Value Year 1 % % Year 2 % % Year 3 % % Year 4 % %Explanation / Answer
Solution:
Computation of annual Operating Income Particulars Amount (In million) Annual operating cash flows $20.00 Less: Depreciation $7.80 Annual operating income $12.20Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.