12 The Street Division of Labrosse Logistics just started operations. It purchased depreciable assets costing $37.4 million and having afour-year expected life, after which the assets can be salvaged for $7.48 million. In addition, the division has $37.4 million in assets thatare not depreciable. After four years, the division will have $37.4 million available from these nondepreciable assets. This means thatthe division has invested $74.8 million in assets with a salvage value of $44.88 million. Annual operating cash flows are $13.4 million. Incomputing 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.In computing ROI, this division uses end-of-year asset values. Assume that all cash flows increase 10 percent at the end of each year.This has the following effect on the assets' replacement cost and annual cash flows:End ofYear1234Replacement Cost$74,800,000 x 1.1 = $82,280,000$82,280,000 x 1.1= $90,508,000Etc.Depreciation is as follows.Year1234For the Year$ 8,228,0009,050, 8009,955,88010,951,468Annual Cash Flow$13,400,000 × 1.1 = $14,740,000$14,740,000 × 1.1 = $16,214,000Etc."Accumulated"$8,228,000 ( 10 % × $82,280,000)18,101,600 (-20% × 90,508,000)29,867,64843,805,872Note that "accumulated" depreciation is 10 percent of the gross book value of depreciable assets after one year, 20 percent after twoyears, and so forth.Required:a. & b. Compute ROI using historical cost, net book value and gross book value.c. & d. Compute ROI using current cost, net book value and gross book value.

It is a financial ratio used to analyse the financial statements with respect to the profitability…

The Street Division of Labrosse Logistics just started operations. It purchased depreciable assets costing $37.4 million and having a four-year expected life, after which the assets can be salvaged for $7.48 million. In addition, the division has $37.4 million in assets that are not depreciable. After four years, the division will have $37.4 million available from these nondepreciable assets. This means that the division has invested $74.8 million in assets with a salvage value of $44.88 million. Annual operating cash flows are $13.4 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.

The Street Division of Labrosse Logistics just started operations. It purchased depreciable assets costing $37.4 million and having a four-year expected life, after which the assets can be salvaged for $7.48 million. In addition, the division has $37.4 million in assets that are not depreciable. After four years, the division will have $37.4 million available from these nondepreciable assets. This means that the division has invested $74.8 million in assets with a salvage value of $44.88 million. Annual operating cash flows are $13.4 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.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 18P

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