Problem $14-67($Algo$)$ Compare Historical, Net Book Value to Gross Book Value, Residual Income $($LO $14-3,5)$

The Street Division of Labrosse Logistics 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\mathrm{.}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 nondepreciable assets. This means that the division has invested $$86$ million in assets with a salvage value of $$51\mathrm{.}6$ million. Annual operating cash flows are $$19$ million. In computing ROI, this division uses$$end$-$of$-$year$$asset values in the denominator. Depreciation is computed on a straight$-$line basis, recognizing the salvage values noted. Ignore taxes.

Assume that the company uses an $15$ percent cost of capital.

Required:

Compute residual income, using net book value for each year.

Compute residual income, using gross book value for each year.

Note: For all the requirements, enter your answers in thousands of dollars. Negative amounts should be indicated by a minus sign. Problem $14-67($Algo$)$ Compare Historical, Net Book Value to Gross Book Value, Residual Income $($LO $143,5)$

The Street Division of Labrosse Logistics just started operations. It purchased depreciable assets costing $\backslash (\backslash$$ $43\backslash )$ million and having a four$-$year expected life, after which the assets can be salvaged for $\backslash (\backslash$$ $8\mathrm{.}6\backslash )$ million. In addition, the division has $\backslash (\backslash$$ $43\backslash )$ million in assets that are not depreciable. After four years, the division will have $\backslash (\backslash$$ $43\backslash )$ million available from these nondepreciable assets. This means that the division has invested $\backslash (\backslash$$ $86\backslash )$ million in assets with a salvage value of $\backslash (\backslash$$ $51\mathrm{.}6\backslash )$ million. Annual operating cash flows are $\backslash (\backslash$$ $19\backslash )$ million. In computing ROI, this division uses end$-$of$-$year asset values in the denominator. Depreciation is computed on a straight$-$line basis, recognizing the salvage values noted. Ignore taxes.

Assume that the company uses an $15$ percent cost of capital.

Required:

a$.$ Compute residual income, using net book value for each year.

b$.$ Compute residual income, using gross book value for each year.

Note: For all the requirements, enter your answers in thousands of dollars. Negative amounts should be indicated by a minus sign.