Question

The Caribbean Division of Mega-Entertainment Corporation just started operations. It purchased depreciable assets costing $37 million...

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 $7.4 million. Annual operating cash flows are $17 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. ROI - Net book value (%) ROI - Gross book value (%) Year 1 Year 2 Year 3 Year 4

Homework Answers

Answer #1

Solution:-

Year Net book value Gross book value
ROI % Calculation ROI% Calculation
Year 1 12.97% 12.97%
Year 2 14.41% 12.97%
Year 3 16.22% 12.97%
Year 4 18.53% 12.97%

Note:- Final answer is rounded off to 2 decimal places.

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
The Ste. Marie Division of Pacific Media Corporation just started operations. It purchased depreciable assets costing...
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 Ste. Marie Division of Pacific Media Corporation just started operations. It purchased depreciable assets costing...
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...
15. One division of the Marvin Educational Enterprises has depreciable assets costing $4,900,000. The cash flows...
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...
Depreciable fixed assets of $2 million are to be used in a 5-year project. Your accountant...
Depreciable fixed assets of $2 million are to be used in a 5-year project. Your accountant uses straight-line depreciation to a terminal book value of $250,000 when the project ends in 5 years. The actual market value of the fixed assets when the project ends is only $150,000. If your tax rate is 35%, what is the after-tax cash flow from the salvage value of these fixed assets?
The Singer Division of Patio Enterprises currently earns $2.97 million and has divisional assets of $22...
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...
1. A 10-year steel pipe-producing project requires $66million in upfront investment (all in depreciable assets). The...
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....