Avion condition that will and

Question

Question

business accounting

Answer 1

Answer #1

Solution:

Annual depreciation = $2,700,000/ 4 = $675,000

Annual net income = Annual cash inflows - Depreciation = $710,000 - $675,000 = $35,000

Computation of ROI and residual Income
Particulars	Year 1	Year 2	Year 3	Year 4
Investment base	$2,700,000.00	$2,025,000.00	$1,350,000.00	$675,000.00
Annual income	$35,000.00	$35,000.00	$35,000.00	$35,000.00
Minimum required income (8% of investment base)	$216,000.00	$162,000.00	$108,000.00	$54,000.00
ROI (Annual income / Investment base)	1.3%	1.7%	2.6%	5.2%
Residual income (Net income - Minimum required income)	-$181,000.00	-$127,000.00	-$73,000.00	-$19,000.00

Answer 2

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