Question

The Ste. Marie Division of Pacific Media Corporation just
started operations. It purchased depreciable assets costing $40
million and having a four-year expected life, after which the
assets can be salvaged for $8 million. In addition, the division
has $40 million in assets that are not depreciable. After four
years, the division will have $40 million available from these
nondepreciable assets. This means that the division has invested
$80 million in assets with a salvage value of $48 million. Annual
depreciation is $8 million. Annual operating cash flows are $21
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. **(Enter your answers as a percentage
rounded to 1 decimal place (i.e., 32.1).)**

NET BOOK VALUE | GROSS BOOK VALUE | |||

YEAR 1 | % | % | ||

YEAR 2 | % | % | ||

YEAR 3 | % | % | ||

YEAR 4 | % | % |

Answer #1

Calculation of
ROI |
||

Year | Net book Value | Gross book Value |

Year 1 | 18.06 | 16.25 |

Year 2 | 20.31 | 16.25 |

Year 3 | 23.21 | 16.25 |

Year 4 | 27.08 | 16.25 |

ROI base on gross book value = Net Income/Gross book Value | ||

ROI base on net book value = Net Income/Net book Value | ||

Working
Notes |
||

Amount in $ (million) | ||

Annual cash Inflow | 21 | |

Less: Annual Depreciation | 8 | |

Net Income |
13 |

Calculation of Net book Value of investment (Amount in $ million) | ||||

Year 1 | Year 2 | Year 3 | Year 4 | |

Gross book Value of Investment | 80 | 80 | 80 | 80 |

Less: Accmulated depreciation | 8 | 16 | 24 | 32 |

Net book value of Investment | 72 | 64 | 56 | 48 |

The Ste. Marie Division of Pacific Media Corporation just
started operations. It purchased depreciable assets costing $47
million and having a four-year expected life, after which the
assets can be salvaged for $9.4 million. In addition, the division
has $47 million in assets that are not depreciable. After four
years, the division will have $47 million available from these
nondepreciable assets. This means that the division has invested
$94 million in assets with a salvage value of $56.4 million. Annual...

The Caribbean Division of Mega-Entertainment Corporation just
started operations. It purchased depreciable assets costing $37
million and having a 4-year expected life, after which the assets
can be salvaged for $7.4 million. In addition, the division has $37
million in assets that are not depreciable. After four years, the
division will have $37 million available from these nondepreciable
assets. This means that the division has invested $74 million in
assets with a salvage value of $44.4 million. Annual depreciation
is...

15.
One division of the Marvin Educational Enterprises has
depreciable assets costing $4,900,000. The cash flows from these
assets for the past three years have been:
Year
Cash flows
1
$
1,911,000
2
$
2,156,000
3
$
2,205,000
The current (i.e., replacement) costs of these assets were expected
to increase 20% each year. Marvin used the straight-line
depreciation method; the estimated useful life is 10-years with
nosalvage value. For return on investment (ROI)
calculations, Marvin uses end-of-year balances.
What is...

A division is considering the acquisition of a new asset that
will cost $2,890,000 and have a cash flow of $710,000 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...

The Singer Division of Patio Enterprises currently earns $2.97
million and has divisional assets of $22 million. The division
manager is considering the acquisition of a new asset that will add
to profit. The investment has a cost of $3,453,000 and will have a
yearly cash flow of $859,500. The asset will be depreciated using
the straight-line method over a six-year life and is expected to
have no salvage value. Divisional performance is measured using ROI
with beginning-of-year net book...

A 10-year widget-producing project requires $36 million in
upfront investment (all in depreciable assets), 30% of which is
borrowed capital at an interest rate of 6% per year. The expected
widget sales are 1,000,000 widgets per year. The expected price per
widget is $24 and the variable cost is $12 per widget. The fixed
costs excluding depreciation are expected to be $6 million per year
for ten years. The upfront investment will be depreciated on a
straight line basis for...

1.
A
10-year
steel pipe-producing
project requires $66million
in upfront
investment
(all in depreciable assets).
The expected price
per
pipe
is $64
and the variable cost is $24
per widget. The fixed costs excluding depreciation are expected to
be $14
million per year for ten years. The upfront investment will be
depreciated on a straight line basis for the 10-year useful life of
the project
to
$6 million
book value.
The expected salvage value of the assets is $14
million....

Intercompany sale of depreciable assets
Assume on January 1, 2015, a parent company a 75% interest in a
subsidiary's voting common stock. On the date of acquisition, the
fair value of the subsidiary's net assets equaled their reported
book values. On January 1, 2017, the subsidiary purchased a
building for $576,000. The building has a useful life of 8 years
and is depreciated on a straight-line basis with no salvage value.
On January 1, 2019, the subsidiary sold the building...

73. Given the following data for Handle Division:
Selling price to
outside customers
$
195
Variable cost per unit
110
Fixed cost per
unit (based on capacity)
50
Capacity (in
units)
62,000
Cabinet Division would like to purchase 11,200 units from the
Handle Division at a price of $170 per unit. Handle Division has
no excess capacity to handle the Cabinet
Division's requirements. The Cabinet Division currently purchases
from an outside supplier at a price of $185. If the Handle...

1. Aguilera Industries is a division of a major corporation.
Data concerning the most recent year appears below:
Sales
$18,310,000
Net operating
income
$1,171,840
Average operating
assets
$5,550,000
The division's turnover is
closest to: (Round your answer to 2 decimal
places.)
15.63
3.30
0.21
4.74
1b. Aguilera Industries is a division of a major corporation.
Data concerning the most recent year appears below:
Sales
$18,280,000
Net operating
income
$712,920
Average operating
assets
$4,360,000
The division's return on investment (ROI) is...

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 14 minutes ago

asked 42 minutes ago

asked 47 minutes ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 2 hours ago

asked 2 hours ago

asked 2 hours ago

asked 2 hours ago

asked 2 hours ago

asked 2 hours ago