Early in January 2016, Tellco, Inc.. acquired a new machine and incurred $200.000 of interest, installation, and over-head costs that should have been capitalized but were expensed. The company earned net operating income of $1,500,000 on average total assets of $10.000.000 for 2016.

Assume that the total cost of the new machine will be depreciated over 10 years using the straight-line method.

Required:

a. Calculate the ROI for Tellco, Inc., for 2016.

b. Calculate the ROI for Tellco, Inc.. for 2016, assuming that the $200.000 had been capitalized and depreciated over 10 years using the straight-line method. (There is an effect on net operating income and average assets.)

c. Given your answers to a and b, why would the company want to account for this expenditure as an expense?

d. Assuming that the $200,000 is capitalized. what will be the effect on ROI for 2017 and subsequent years. Compared to expensing the interest, installation, and overhead costs in 2016? Explain your answer.