In Determining the Dollar Amount to Use for Operating Assets

question 54

Multiple Choice

In determining the dollar amount to use for operating assets in the return on investment (ROI) calculation, companies will generally use either net book value or gross cost of the assets. Which of the following is not an argument for the use of net book value rather than gross cost?

• A) It is consistent with how assets are reported on the balance sheet.
• B) It eliminates the depreciation method as a factor in ROI calculations.
• C) It encourages the replacement of old, worn-out equipment.
• D) It will result in a decrease of ROI each year.

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