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Compare Historical Cost, Net Book Value to Gross Book Value
The Ste. Marie Division of Pacific Media Corporation just started operations. It purchased
Required
- a. Compute ROI, using net book value for each year.
- b. Compute ROI, using gross book value for each year.
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Chapter 14 Solutions
FUNDAMENTALS OF COST ACCOUNTING IA
- The Ste. Marie Division of Pacific Media Corporation just started operations. It purchased depreciable assets costing $50 million and having a four-year expected life, after which the assets can be salvaged for $10 million. In addition, the division has $50 million in assets that are not depreciable. After four years, the division will have $50 million available from these nondepreciable assets. This means that the division has invested $100 million in assets with a salvage value of $60 million. Annual depreciation is $10 million. Annual operating cash flows are $23 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. Assume that the company uses a 12 percent cost of capital. Required: a. Compute residual income, using net book value for each year. b. Compute residual income, using gross book value for each year. (Enter your answers in thousands…arrow_forwardThe Ste. Marie Division of Pacific Media Corporation just started operations. It purchased depreciable assets costing $45 million and having a four-year expected life, after which the assets can be salvaged for $9 million. In addition, the division has $45 million in assets that are not depreciable. After four years, the division will have $45 million available from these nondepreciable assets. This means that the division has invested $90 million in assets with a salvage value of $54 million. Annual depreciation is $9 million. Annual operating cash flows are $20 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. Required: a. & b. Compute ROI, using net book value and gross book value for each year. (Enter your answers as a percentage rounded to 1 decimal place (i.e., 32.1).) Year 1 Year 2 Year 3 Year 4 ROI Net Book Value Gross Book Value % % %…arrow_forwardThe 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…arrow_forward
- The Street Division of Labrosse Logistics Just started operations. It purchased depreciable assets costing $39.5 million and having a four-year expected life, after which the assets can be salvaged for $7.9 million. In addition, the division has $39.5 million in assets that are not depreciable. After four years, the division will have $39.5 million available from these non depreciable assets. This means that the division has invested $79 million in assets with a salvage value of $47.4 million. Annual operating cash flows are $12.7 million. In computing ROI, this division uses beginning-of-year asset values in the denominator. Depreciation is computed on a straight-line basis. recognizing the salvage values noted. Ignore taxes. Required: a. & b. Compute ROI, using net book value and gross book value. Note: Enter your answers as a percentage rounded to 2 decimal place (Le., 32.10). Year 1 Year 2 Year 3 Year 4 Net Book Value % % ROI Gross Book Value %arrow_forwardThe Ste. Marie Division of Pacific Media Corporation just started operations. It purchased depreciable assets costing $54 million and having a four-year expected life, after which the assets can be salvaged for $10.8 million. In addition, the division has $54 million in assets that are not depreciable. After four years, the division will have $54 million available from these nondepreciable assets. This means that the division has invested $108 million in assets with a salvage value of $64.8 million. Annual depreciation is $10.8 million. Annual operating cash flows are $29 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).) ROI Net Book Value Gross Book…arrow_forwardThe Street Division of Labrosse Logistics just started operations. It purchased depreciable assets costing $38.5 million and having a four-year expected life, after which the assets can be salvaged for $7.7 million. In addition, the division has $38.5 million in assets that are not depreciable. After four years, the division will have $38.5 million available from these non depreciable assets. This means that the division has invested $77 million in assets with a salvage value of $46.2 million. Annual operating cash flows are $12.5 million. In computing ROI, this division uses beginning-of-year asset values in the denominator. Depreciation is computed on a straight-line basis, recognizing the salvage values noted. Ignore taxes. Required: a. & b. Compute ROI, using net book value and gross book value. Note: Enter your answers as a percentage rounded to 2 decimal place (i.e., 32.10). Year 1 Year 2 Year 3 Year 4 > Answer is complete but not entirely correct. Net Book Value 32.47 % 40.58 X…arrow_forward
- The Street Division of Labrosse Logistics just started operations. It purchased depreciable assets costing $37.5 million and having a four-year expected life, after which the assets can be salvaged for $75 million. In addition, the division has $375 milion in assets that are not depreciable. After four years, the division will have $375 million available from these non depreciable assets. This means that the division has invested $75 milion in assets with a salvage value of $45.0 million. Annual operating cash flows are $12.3 million. In computing ROI, this division uses beginning of year asset values in the denominator. Depreciation is computed on a straight-line basis, recognizing the salvage values noted. Ignore taxes Required: a. & b. Compute ROI, using net book value and gross book value Note: Enter your answers as a percentage rounded to 2 decimal place (ie, 32.10). Year 1 Year 2 Year 3 Your 4 Answer is complete but not entirely correct. ROI Net Book Value 1822 18 22 20.50 23 43…arrow_forwardThe Ste. Marie Division of Pacific Media Corporation just started operations. It purchased depreciable assets costing $35 million and having a four-year expected life, after which the assets can be salvaged for $7 million. In addition, the division has $35 million in assets that are not depreciable. After four years, the division will have $35 million available from these nondepreciable assets. This means that the division has invested $70 million in assets with a salvage value of $42 million. Annual depreciation is $7 million. Annual operating cash flows are $27.5 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. 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 Replacement Cost Annual Cash Flow 1 $ 70,000,000 × 1.1 =…arrow_forwardThe Street Division of Labrosse Logistics just started operations. It purchased depreciable assets costing $37.0 million and having a four- year expected life, after which the assets can be salvaged for $7.4 million. In addition, the division has $37.0 million in assets that are not depreciable. After four years, the division will have $37.0 million available from these non depreciable assets. This means that the division has invested $74 million in assets with a salvage value of $44.4 million. Annual operating cash flows are $12.2 million. In computing ROI, this division uses beginning-of-year asset values in the denominator. Depreciation is computed on a straight-line basis, recognizing the salvage values noted. Ignore taxes. Required: a. & b. Compute ROI, using net book value and gross book value.arrow_forward
- The Street Division of Labrosse Logistics just started operations. It purchased depreciable assets costing $37.5 million and having a four-year expected life, after which the assets can be salvaged for $7.5 million. In addition, the division has $37.5 million in assets that are not depreciable. After four years, the division will have $37.5 million available from these non depreciable assets. This means that the division has invested $75 million in assets with a salvage value of $45.0 million. Annual operating cash flows are $12.3 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. Required: a. & b. Compute ROI, using net book value and gross book value for each year. Note: Enter your answers as a percentage rounded to 2 decimal places (i.e., 32.10). Answer is complete but not entirely ROI Net Book Value Gross Book Value Year 1 18.22 % 16.40%…arrow_forwardThe Street Division of Labrosse Logistics just started operations. It purchased depreciable assets costing $40.0 million and having a four-year expected life, after which the assets can be salvaged for $8.0 million. In addition, the division has $40.0 million in assets that are not depreciable. After four years, the division will have $40.0 million available from these non depreciable assets. This means that the division has invested $80 million in assets with a salvage value of $48.0 million. Annual operating cash flows are $12.8 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. Required: a. & b. Compute ROI, using net book value and gross book value for each year. Note: Enter your answers as a percentage rounded to 2 decimal places (i.e., 32.10). Year 1 Year 2 Year 3 Year 4 ROI Net Book Value Gross Book Value % % % % % %arrow_forwardThe Street Division of Labrosse Logistics just started operations. It purchased depreciable assets costing $40.5 million and having a four-year expected life, after which the assets can be salvaged for $8.1 million. In addition, the division has $40.5 million in assets that are not depreciable. After four years, the division will have $40.5 million available from these non depreciable assets. This means that the division has invested $81 million in assets with a salvage value of $48.6 million. Annual operating cash flows are $12.9 million. In computing ROI, this division uses beginning-of-year asset values in the denominator. Depreciation is computed on a straight-line basis, recognizing the salvage values noted. Ignore taxes. Required: a. & b. Compute ROI, using net book value and gross book value. Note: Enter your answers as a percentage rounded to 2 decimal place (i.e., 32.10). Year 1 Year 2 Year 3. Year 4 ROI Net Book Value % % % % Gross Book Value % % % %arrow_forward
- Intermediate Financial Management (MindTap Course...FinanceISBN:9781337395083Author:Eugene F. Brigham, Phillip R. DavesPublisher:Cengage LearningEBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENT
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