Winter Division of Seasons, Inc., acquired depreciable assets costing $4 million. The cash flows from these assets for three years were as follows:
|
Year |
Cash Flow |
|
1 |
$1,000,000 |
|
2 |
1,200,000 |
|
3 |
1,420,000 |
Depreciation of these assets was 10 percent per year; the assets have no salvage value after 10 years. The denominator in the ROI calculation is based on end of year asset values. If replaced with identical new assets, these assets would cost $5,000,000 at the end of year 1, $6,250,000 at the end of year 2, and $7,800,000 at the end of year 3.
Compute the ROI for each year under each of the following methods (ignore holding gains and losses):
a. Historical cost, net book value.
b. Current cost, net book value.
c. Historical cost, gross book value.
d. Current cost, gross book value.