One Division of the Marvin Educational Enterprises Has Depreciable Assets

question 51

Multiple Choice

One division of the Marvin Educational Enterprises has depreciable assets costing $4,000,000. The cash flows from these assets for the past three years have been:
$$\begin{array} { c l l } \text { Year } & { \text { Cash flows } } \\1 & \mathbf { \$ } 1,200,000 \\2 & \$ 1,400,000 \\3 & \$ 1,620,000\end{array}$$
The current (i.e., replacement) costs of these assets were expected to increase 25% each year.
-Marvin used the straight-line depreciation method and the estimated useful life is 10-years with no salvage value. For return on investment (ROI) calculations, Marvin uses end-of-year balances.
What is the ROI using historical cost and net book value?
$\begin{array} { l r r r } & \text { Year } 1 & \text { Year 2 } & \text { Year 3 } \\\end{array}$
A) $\begin{array} { l r r r } & 21.5 \% & 34.0 \% & 42.0 \% \\\end{array}$
B) $\begin{array} { l r r r } & 22.2 \% & 31.3 \% & 43.0 \% \\\end{array}$
C) $\begin{array} { l r r r } & 23.0 \% & 32.0 \% & 47.0 \% \\\end{array}$
D) $\begin{array} { l r r r } & 24.9 \% & 35.0 \% & 49.5 \%\end{array}$

• A)\(\begin{array} { l r r r } & 21.5 \% & 34.0 \% & 42.0 \% \\\end{array}\)
• B)\(\begin{array} { l r r r } & 22.2 \% & 31.3 \% & 43.0 \% \\\end{array}\)
• C)\(\begin{array} { l r r r } & 23.0 \% & 32.0 \% & 47.0 \% \\\end{array}\)
• D) \(\begin{array} { l r r r } & 24.9 \% & 35.0 \% & 49.5 \%\end{array}\)
• A) Option A
• B) Option B
• C) Option C
• D) Option D

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Definitions:

Mobile Phones

Portable electronic devices used for communication, internet browsing, and running applications.

Tablets

Portable computing devices featuring a touchscreen interface, designed for a range of activities from reading and web browsing to multimedia consumption.

Oral Media

Media content that is delivered and consumed through spoken word, such as podcasts or radio.

Visual Media

Forms of communication that use visual elements, such as images, videos, or graphics, to convey information or messages.