1. MBA, Inc. has assets with a net asset value of $6 million, including $2 million in accumulated depreciation. The assets are, on average, four years old and the inflation rate over the last four years has been approximately 3% per year. The firm's assets have 7 more years of asset life, for a total life of 11 years. The expected after-tax salvage value of the assets has been calculated at $1.5 million, to be recovered in the terminal year. The firm reported earnings before interest and taxes (EBIT) of $1.3 million and a depreciation expense of $250 thousand. The firm's tax rate is 40%. MBA, Inc. has an after-tax cost of debt of 6.50% and a cost of equity of 12.00%. The firm's capital structure is 40% debt and 60% equity. What is MBA Inc.'s gross investment (GI) for purposes of computing its cash flow return on investment (CFROI)?
A. $6,130,000
B. $8,030,000
C. $9,004,000
D. $10,140,000
2. MBA, Inc. has assets with a net asset value of $6 million, including $2 million in accumulated depreciation. The assets are, on average, four years old and the inflation rate over the last four years has been approximately 3% per year. The firm's assets have 7 more years of asset life, for a total life of 11 years. The expected after-tax salvage value of the assets has been calculated at $1.5 million, to be recovered in the terminal year. The firm reported earnings before interest and taxes (EBIT) of $1.3 million and a depreciation expense of $250 thousand. The firm's tax rate is 40%. MBA, Inc. has an after-tax cost of debt of 6.50% and a cost of equity of 12.00%. The firm's capital structure is 40% debt and 60% equity. What is MBA Inc.'s gross cash flow (GCF) for purposes of computing its cash flow return on investment (CFROI)?
A. $780,000
B. $1,030,000
C. $1,550,000
D. None of the above