Question

The Ste. Marie Division of Pacific Media Corporation just started operations. It purchased depreciable assets costing $51 million and having a four-year expected life, after which the assets can be salvaged for $10.2 million. In addition, the division has $51 million in assets that are not depreciable. After four years, the division will have $51 million available from these nondepreciable assets. This means that the division has invested $102 million in assets with a salvage value of $61.2 million. Annual depreciation is $10.2 million. Annual operating cash flows are $25 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