Solution-Compute residual income using net book value for

Compute residual income using net book value for each year

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Reference no: EM133157888

Question - The Ste. Marie Division of Pacific Media Corporation just started operations. It purchased depreciable assets costing $95 million and having a four-year expected life, after which the assets can be salvaged for $19 million. In addition, the division has $95 million in assets that are not depreciable. After four years, the division will have $95 million available from these nondepreciable assets. This means that the division has invested $190 million in assets with a salvage value of $114 million. Annual depreciation is $19 million. Annual operating cash flows are $50 million. In computing ROI, this division uses end-of-year asset values in the denominator. Depreciation is computed on a straight-line basis, recognizing the salvage values noted. Ignore taxes. Assume that the company uses a 12 percent cost of capital.

Required -

a. Compute residual income, using net book value for each year.

b. Compute residual income, using gross book value for each year.

Reference no: EM133157888

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Compute residual income using net book value for each year

Reference no: EM133157888

Reference no: EM133157888

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