The chief operating officer of the Wisconsin Corporation is considering the effect of depreciation on the company's ROI. In the most recent year, net operating profit after taxes was $35,000,000 and investment (total assets of $460,000,000 less noninterest-bearing current liabilities of $20,000,000) was $440,000,000.

Required

a. Assuming that total assets will decline each year by 6 percent due to depreciation of plant and equipment but NOPAT will remain constant, calculate ROI for each of the next 5 years.

b. Explain why evaluation in terms of ROI may lead managers to delay purchases of equipment that, in the long run, will be needed to remain competitive.