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Exercise 14-32 Compare Current Cost to Historical Cost (LO 14-2, 5) The Caribbean Division of Mega-Entertainment Corporation just started operations. It purchased depreciable assets costing $30 million and having a four-year expected life, after which the assets can be salvaged for $6 million. In addition, the division has $30 million in assets that are not depreciable. After four years, the division will have $30 million available from these non-depreciable assets. This means that the division has invested $60 million in assets with a salvage value of $36 million. Annual depreciation is $6 million. Annual operating cash flows are $20 million. In computing ROI, this division uses end-ofyear 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 60,000,000 x 1.1 $66,000,000 20,000,000 x 1.1 22,000,000 66,000,000 x 1.1 $72,600,000 22,000,000 x 1.1 24,200,000 Etc Etc Depreciation is as follows: ear For the Year "Accumulated" 1 6,600,000 6,600,000 10% x $66,000,000) 2 7,260,000 14,520,000 20% x 72,600,000) 7,986,000 23,958,000 8,784,600 35,138,400 Note that "accumulated" depreciation is 10 percent of the gross book value of depreciable assets after one year, 20 percent after two years, and so forth Required (a) Compute Rol using historical cost, net book value and gross book value. (Do not round intermediate calculations. Round your answers to 1 decimal place.) ROI Net book ROI Gros Historical cos book val Year 1 Year 2 Year 3 Year 4