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roi versus ri a division is considering the acquisition of a new asset that will cos 691290

ROI versus RI

A division is considering the acquisition of a new asset that will cost $720,000 and have a cash flow of $252,000 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. 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?

b. What is the residual income each year if the cost of capital is 15 percent?

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