The Ste. Marie Division of Pacific Media Corporation just started operations. It
ID: 2547192 • Letter: T
Question
The Ste. Marie Division of Pacific Media Corporation just started operations. It purchased deprciable assets costing $54 million and having a four-year expected life, after which the assets can be salvaged for $10.8 million. In addition, the division has $54 million in assets that are not depreciable. After four years, the division will have $54 million available from these nondepreciable assets. This means that the division has invested $108 million in assets with a salvage value of $64.8 million. Annual depreciation is $10.8 million. Annual operating cash flows are $23 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.1
Required: Compute ROI using Net Book Value and Gross Book Value: Net Book Value Gross Book Value
Year 1 ______% ______%
Year 2 ______% ______%
Year 3 ______% ______%
Year 4 _______% ______%
Please show me how to compute this.......thanks
Explanation / Answer
Year Net Value (Operating Cashflow-Annual Depreciation)/Net asset value at year start Gross value ((Operating Casflow-annual depreciation)/Gross assets) 1 11.30% =(23- 10.8)/108 11.30% =(23- 10.8)/108 2 12.55% =(23- 10.8)/(108-10.8) 11.30% =(23- 10.8)/108 3 14.12% =(23- 10.8)/(108-(10.8*2)) 11.30% =(23- 10.8)/108 4 16.14% =(23- 10.8)/(108-(10.8*3)) 11.30% =(23- 10.8)/108
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