The Ste. Marie Division of Pacific Media Corporation just started operations. It purchased depreciable assets costing $43 million and having a four-year expected life, after which the assets can be salvaged for $8.6 million. In addition, the division has $43 million in assets that are not depreciable. After four years, the division will have $43 million available from these non-depreciable assets. This means that the division has invested $86 million in assets with a salvage value of $51.6 million. Annual depreciation is $8.6 million. Annual operating cash flows are $22 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:

Compute ROI, using net book value and gross book value.

Answer rating: 100% (QA)

Year 1 Year 2 Year 3 Year 4 A Annual cash inflow Depreciation each year Annual incom... View the full answer