Homework Help is Here – Start Your Trial Now!
Business
Accounting
The Street Division of Labrosse Logistics just started operations. It purchased depreciable assets costing $38.0 million and having a four-year expected life, after which the assets can be salvaged for $7.60 million. In addition, the division has $38.0 million in assets that are not depreciable. After four years, the division will have $38.0 million available from these nondepreciable assets. This means that the division has invested $76.0 million in assets with a salvage value of $45.60 million. Annual operating cash flows are $14.0 million. In computing ROI, this division uses end-of-year asset values in the denominator. Depreciation is computed on a straight-line basis, recognizing the salvage values noted. Ignore taxes. In computing ROI, this division uses end-of-year asset values. Assume that all cash flows increase 10 percent at the end of each year. This has the following effect on the assets' replacement cost and annual cash flows: End of Year 1 2 3 4 Replacement Cost $76,000,000 x 1.1 = $83,600,000 $83,600,000 x 1.1 = $91,960,000 Etc. Depreciation is as follows. Year 1 2 3 4 For the Year $ 8,360,000 9,196,000 0,115,600 11,127,160 Annual Cash Flow $14,000,000 x 1.1 = $15,400,000 $15,400,000 x 1.1 = $16,940,000 Etc. "Accumulated" $8,360,000 (= 10% x $83,600,000) 18,392,000 (= 208 x 91,960,000) 30,346,800 44,508,640 Note that "accumulated" depreciation is 10 percent of the gross book value of depreciable assets after one year, 20 percent after two years, and so forth. Required: a. & b. Compute ROI using historical cost, net book value and gross book value. c. & d. Compute ROI using current cost, net book value and gross book value.

The Street Division of Labrosse Logistics just started operations. It purchased depreciable assets costing $38.0 million and having a four-year expected life, after which the assets can be salvaged for $7.60 million. In addition, the division has $38.0 million in assets that are not depreciable. After four years, the division will have $38.0 million available from these nondepreciable assets. This means that the division has invested $76.0 million in assets with a salvage value of $45.60 million. Annual operating cash flows are $14.0 million. In computing ROI, this division uses end-of-year asset values in the denominator. Depreciation is computed on a straight-line basis, recognizing the salvage values noted. Ignore taxes. In computing ROI, this division uses end-of-year asset values. Assume that all cash flows increase 10 percent at the end of each year. This has the following effect on the assets' replacement cost and annual cash flows: End of Year 1 2 3 4 Replacement Cost $76,000,000 x 1.1 = $83,600,000 $83,600,000 x 1.1 = $91,960,000 Etc. Depreciation is as follows. Year 1 2 3 4 For the Year $ 8,360,000 9,196,000 0,115,600 11,127,160 Annual Cash Flow $14,000,000 x 1.1 = $15,400,000 $15,400,000 x 1.1 = $16,940,000 Etc. "Accumulated" $8,360,000 (= 10% x $83,600,000) 18,392,000 (= 208 x 91,960,000) 30,346,800 44,508,640 Note that "accumulated" depreciation is 10 percent of the gross book value of depreciable assets after one year, 20 percent after two years, and so forth. Required: a. & b. Compute ROI using historical cost, net book value and gross book value. c. & d. Compute ROI using current cost, net book value and gross book value.

EBK CONTEMPORARY FINANCIAL MANAGEMENT
EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN:9781337514835
Author:MOYER
Publisher:MOYER
Chapter9: Capital Budgeting And Cash Flow Analysis
Section: Chapter Questions
Problem 18P
See similar textbooks
icon
Related questions
Topic Video
Question
The Street Division of Labrosse Logistics just started operations. It purchased depreciable assets costing $38.0 million and having a four-year expected life, after which the assets can be salvaged for $7.60 million. In addition, the division has $38.0 million in assets that are not depreciable. After four years, the division will have $38.0 million available from these nondepreciable assets. This means that the division has invested $76.0 million in assets with a salvage value of $45.60 million. Annual operating cash flows are $14.0 million. In computing ROI, this division uses end-of-year asset values in the denominator. Depreciation is computed on a straight-line basis, recognizing the salvage values noted. Ignore taxes. In computing ROI, this division uses end-of-year asset values. Assume that all cash flows increase 10 percent at the end of each year. This has the following effect on the assets' replacement cost and annual cash flows: End of Year 1 2 3 4 Depreciation is as follows. 2 Replacement Cost $76,000,000 x 1.1 = $83,600,000 $83,600,000 x 1.1 = $91,960,000 Etc. Year For the Year 1 $ 8,360,000 9,196,000 10,115,600 11,127,160 3 4 Annual Cash Flow $14,000,000 x 1.1 = $15,400,000 $15,400,000 x 1.1 = $16,940,000 Etc. "Accumulated" $8,360,000 (= 10% x $83,600,000) 18,392,000 ( 208 x 91,960,000) 30,346,800 44,508,640 Note that "accumulated" depreciation is 10 percent of the gross book value of depreciable assets after one year, 20 percent after two years, and so forth. Required: a. & b. Compute ROI using historical cost, net book value and gross book value. c. & d. Compute ROI using current cost, net book value and gross book value.
Transcribed Image Text:The Street Division of Labrosse Logistics just started operations. It purchased depreciable assets costing $38.0 million and having a four-year expected life, after which the assets can be salvaged for $7.60 million. In addition, the division has $38.0 million in assets that are not depreciable. After four years, the division will have $38.0 million available from these nondepreciable assets. This means that the division has invested $76.0 million in assets with a salvage value of $45.60 million. Annual operating cash flows are $14.0 million. In computing ROI, this division uses end-of-year asset values in the denominator. Depreciation is computed on a straight-line basis, recognizing the salvage values noted. Ignore taxes. In computing ROI, this division uses end-of-year asset values. Assume that all cash flows increase 10 percent at the end of each year. This has the following effect on the assets' replacement cost and annual cash flows: End of Year 1 2 3 4 Depreciation is as follows. 2 Replacement Cost $76,000,000 x 1.1 = $83,600,000 $83,600,000 x 1.1 = $91,960,000 Etc. Year For the Year 1 $ 8,360,000 9,196,000 10,115,600 11,127,160 3 4 Annual Cash Flow $14,000,000 x 1.1 = $15,400,000 $15,400,000 x 1.1 = $16,940,000 Etc. "Accumulated" $8,360,000 (= 10% x $83,600,000) 18,392,000 ( 208 x 91,960,000) 30,346,800 44,508,640 Note that "accumulated" depreciation is 10 percent of the gross book value of depreciable assets after one year, 20 percent after two years, and so forth. Required: a. & b. Compute ROI using historical cost, net book value and gross book value. c. & d. Compute ROI using current cost, net book value and gross book value.
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 4 steps

SEE SOLUTIONCheck out a sample Q&A here
Blurred answer
Knowledge Booster
Depreciation Accounting
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
EBK CONTEMPORARY FINANCIAL MANAGEMENT
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
SEE MORE TEXTBOOKS