In January 2006 the Status Quo Company was formed. Total assets were $500,000, of which $300,000 consisted of capital assets. Status Quo uses straight-line amortization, and in 2006 it estimated its capital assets to have useful lives of 10 years. After tax income has been $26,000 per year each of the last 10 years. Other assets have not changed since 2006.
a. Compute ROA at year-end for 2006,2008,2011,2013, and 2015.
b. To what do you attribute the phenomenon shown in part a?
c. Now assume income increased by 10 percent each year. What effect would this have on your above answers? Comment.