Question

The Ste. Marie Division of Pacific Media Corporation just started operations. It purchased depreciable assets costing $43 million and having a four-year expected life, after which the assets can be salvaged for $8.6 million. In addition, the division has $43 million in assets that are not depreciable. After four years, the division will have $43 million available from these nondepreciable assets. This means that the division has invested $86 million in assets with a salvage value of $51.6 million. Annual depreciation is $8.6 million. Annual operating cash flows are $21 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.

Required:

a. & b. Compute ROI, using net book value and gross book value. (Enter your answers as a percentage rounded to 1 decimal place (i.e., 32.1).)

	ROI Net Book Value Gross Book Value Year 1 % % Year 2 % % Year 3 % % Year 4 % %

Answer 1

lo Year Gross Book Value b Annual Depreciation Accumulated Depreciation Net Book Value e-b-d 0 86 8.6 77.4 17.2 68.8 25.8 60.2 8.6 34.4 51.6 8.6 Operating Income =$21 Computation Of ROI = Operating Cash Flow / Book Value or Net Value Year Net Book Value Gross Book Value 24.4 24.4 % 27.1 24.4 % 30.5 34.9 24.4 % 24.4 % Final Answer