A division is considering the acquisition of a new asset


Question: A division is considering the acquisition of a new asset that will cost $730,000 and have a cash flow of $281,000 per year for each of the four years of its life. Depreciation is computed on a straight-line basis with no salvage value. Ignore taxes. Required: What is the ROI for each year of the asset's life if the division uses beginning-of-year asset balances and net book value for the computation? What is the residual income each year if the cost of capital is 25 percent? (Round "ROI" to 1 decimal place. Round your residual income answers to the nearest whole dollar amount. Negative amounts should be indicated by a minus sign. Omit the "tiny_mce_markerquot; and "%" signs in your response.) Year Investment Base ROI Residual Income 1 $ 730,000 a % $ 2 3 4 a Base decreases by annual depreciation.

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Finance Basics: A division is considering the acquisition of a new asset
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