Albany Division is considering the acquisition of a new asset that will cost $540,000 and have a cash flow of $180,000 per year for each of the four years of its life. Depreciation is computed on a straight-line basis with no salvage value. Ignore taxes. Required: a. & b. What is the ROI for each year of the asset's life if the division uses beginning-of-year asset balances and net book value for the computation? What is the residual income each year if the cost of capital is 9 percent? Note: Enter "ROI" answers as a percentage rounded to 1 decimal place (i.e., 32.1). Negative amounts should be indicated by a minus sign. Year 1 2 3 Answer is complete but not entirely correct. Residual Income Investment Base S 540,000 405,000 270,000 ROI 6.5 % 8.6% 13.0 % $ (13,600) (1.450) X 10,700 X

Albany Division is considering the acquisition of a new asset that will cost $540,000 and have a cash flow of $180,000 per year for each of the four years of its life. Depreciation is computed on a straight-line basis with no salvage value. Ignore taxes. Required: a. & b. What is the ROI for each year of the asset's life if the division uses beginning-of-year asset balances and net book value for the computation? What is the residual income each year if the cost of capital is 9 percent? Note: Enter "ROI" answers as a percentage rounded to 1 decimal place (i.e., 32.1). Negative amounts should be indicated by a minus sign. Year 1 2 3 Answer is complete but not entirely correct. Residual Income Investment Base S 540,000 405,000 270,000 ROI 6.5 % 8.6% 13.0 % $ (13,600) (1.450) X 10,700 X

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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