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Calculate the ROI for Tellco

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Reference no: EM132826473

Question - Early in January 2019, Tellco Inc. acquired a new machine and incurred $12,000 of interest, installation, and overhead costs that should have been capitalized but were expensed. The company earned net operating income of $85,000 on average total assets of $795,000 for 2019. Assume that the total cost of the new machine will be depreciated over 10 years using the straight-line method.

Required -

1. Calculate the ROI for Tellco for 2019.

2. Calculate the ROI for Tellco for 2019, assuming that the $12,000 had been capitalized and depreciated over 10 years using the straight-line method.

3. Given your answers to parts a and b, why would the company want to account for this expenditure as an expense?

4. Assuming that the $12,000 is capitalized, what will be the effect on ROI for 2020 and subsequent years, compared to expensing the interest, installation, and overhead costs in 2019?

Reference no: EM132826473

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