Question
In: Accounting
Upper Division of Lower Company acquired an asset with a cost of $560,000 and a four-year...
Upper Division of Lower Company acquired an asset with a cost of $560,000 and a four-year life. The cash flows from the asset, considering the effects of inflation, were scheduled as follows.
| Year | Cash Flow | ||
| 1 | $ | 220,000 | |
| 2 | 250,000 | ||
| 3 | 280,000 | ||
| 4 | 330,000 | ||
The cost of the asset is expected to increase at a rate of 20 percent per year, compounded each year. Performance measures are based on beginning-of-year gross book values for the investment base. Ignore taxes.
Required:
a. What is the ROI for each year of the asset's life, using a historical cost approach?
b. What is the ROI for each year of the asset's life if both the investment base and depreciation are determined by the current cost of the asset at the start of each year?
Solutions
ekkarill92 answered 2 years agoRelated Solutions
Upper Division of Lower Company acquired an asset with a cost of $560,000 and a four-year...
Upper Division of Lower Company acquired an asset with a cost of
$560,000 and a four-year life. The cash flows from the asset,
considering the effects of inflation, were scheduled as
follows.
Year
Cash Flow
1
$
205,000
2
270,000
3
290,000
4
315,000
The cost of the asset is expected to increase at a rate of 10
percent per year, compounded each year. Performance measures are
based on beginning-of-year gross book values for the investment
base. Ignore taxes.
Required:...
Upper Division of Lower Company acquired an asset with a cost of $550,000 and a four-year...
Upper Division of Lower Company acquired an asset with a cost of
$550,000 and a four-year life. The cash flows from the asset,
considering the effects of inflation, were scheduled as
follows:
The cost of the asset is expected to increase at a rate of 10
percent per year, compounded each year. Performance measures are
based on beginning-of-year gross book values for the investment
base. Ignore taxes.
Year Cash Flow
1 $200,000
2 $245,000
3 $280,000
4 $305,000
Required:
a....
Upper Division of Lower Company acquired an asset with a cost of $580,000 and a four-year...
Upper Division of Lower Company acquired an asset with a cost of
$580,000 and a four-year life. The cash flows from the asset,
considering the effects of inflation, were scheduled as
follows:
Year
Cash Flow
1
$
185,000
2
265,000
3
285,000
4
305,000
The cost of the asset is expected to increase at a rate of 20
percent per year, compounded each year. Performance measures are
based on beginning-of-year gross book values for the investment
base. Ignore taxes. Required:...
Consider a four-year project with the following information: initial fixed asset investment = $560,000; straight-line depreciation...
Consider a four-year project with the following information:
initial fixed asset investment = $560,000; straight-line
depreciation to zero over the four-year life; zero salvage value;
price = $38; variable costs = $26; fixed costs = $235,000; quantity
sold = 82,000 units; tax rate = 25 percent.
a.
What is the degree of operating leverage at the given level of
output? (Do not round intermediate calculations and round
your answer to 4 decimal places, e.g., 32.1616.)
b.
What is the...
Monty Company acquired a plant asset at the beginning of Year 1. The asset has an...
Monty Company acquired a plant asset at the beginning of Year 1.
The asset has an estimated service life of 5 years. An employee has
prepared depreciation schedules for this asset using three
different methods to compare the results of using one method with
the results of using other methods. You are to assume that the
following schedules have been correctly prepared for this asset
using (1) the straight-line method, (2) the
sum-of-the-years'-digits method, and (3) the
double-declining-balance method.
Year...
Windsor Company acquired a plant asset at the beginning of Year 1. The asset has an...
Windsor Company acquired a plant asset at the beginning of Year
1. The asset has an estimated service life of 5 years. An employee
has prepared depreciation schedules for this asset using three
different methods to compare the results of using one method with
the results of using other methods. You are to assume that the
following schedules have been correctly prepared for this asset
using (1) the straight-line method, (2) the
sum-of-the-years'-digits method, and (3) the
double-declining-balance method.
Year...
An asset costs $560,000 and will be depreciated in a straight-line manner over its three-year life....
An asset costs $560,000 and will be depreciated in a
straight-line manner over its three-year life. It will have no
salvage value. The lessor can borrow at 7.5 percent and the lessee
can borrow at 9 percent. The corporate tax rate is 24 percent for
both companies.
a. What lease payment will make the lessee and the lessor
equally well off?
b.
Assume that the lessee pays no taxes and the lessor is in the 24
percent tax bracket. For...
Question four (15 marks) (I)During the year KCM acquired a new asset with a fair value...
Question four
(I)During the year KCM acquired a new asset with a fair value of
K500, 000 under a finance lease. The
lease agreement states that payments of K100, 000 must be paid for
six years on 31 December each
year, starting on 31 December 2010. At the end of the six year
period legal title of the asset will pass to
KCM.
KCM believes the only accounting entry he must make in relation to
this asset is for the...
DLW Corporation acquired and placed in service the following assets during the year: Date Cost Asset...
DLW Corporation acquired and placed in service the following
assets during the year: Date Cost Asset Acquired Basis Computer
equipment 3/3 $ 17,000 Furniture 1/19 25,700 Commercial building
9/22 321,000 Assuming DLW does not elect §179 expensing and elects
not to use bonus depreciation, answer the following questions: (Use
MACRS Table 1, Table 2, Table 3, Table 4 and Table 5.) (Do not
round intermediate calculations. Round your final answers to the
nearest whole dollar amount.)
b. What is DLW's...
Dog Co. acquired and placed in service the following assets during the year: Date Cost Asset...
Dog Co. acquired and
placed in service the following assets during the year:
Date
Cost
Asset
Placed in
Service
Basis
Computer
equipment
2/22
$
10,500
Furniture
3/5
21,000
Commercial
building
7/6
315,000
Assuming Dog Co. does
not elect §179 expensing and elects not to use bonus depreciation,
answer the following questions: (Use MACRS Table 1, Table 2, Table
3, Table 4 and Table 5.) (Do not round intermediate
calculations. Round your final answers to the nearest whole dollar
amount.)
b....
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