The Butyl Division of the Swiss Corporation Just Started Operations

question 146

Essay

The Butyl Division of the Swiss Corporation just started operations. It purchased depreciable assets costing $2,500,000 with an expected life of five years, after which the assets can be salvaged for $400,000. Depreciation is computed for the financial statements on a straight-line basis, using the salvage value. Annual operating cash flows are $1,300,000.
Required:
a. Compute the division's return on investment (ROI) for each year, using beginning of the year asset values, historical costs, and net book values.
b. Compute the division's return on investment (ROI) for each year, using end of the year asset values, historical costs, and net book values.