The Street Division of Labrosse Logistics just started operations. It purchased depreciable assets costing $49...
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The Street Division of Labrosse Logistics just started operations. It purchased depreciable assets costing $49 million and having a four-year expected life, after which the assets can be salvaged for $9.8 million. In addition, the division has $49 million in assets that are not depreciable. After four years, the division will have $49 million available from these nondepreciable assets. This means that the division has invested $98 million in assets with a salvage value of $58.8 million. Annual operating cash flows are $21 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 an 13 percent cost of capital.
Required:
Compute residual income, using net book value for each year.
Compute residual income, using gross book value for each year.
Note: For all the requirements, enter your answers in thousands of dollars. Negative amounts should be indicated by a minus sign.
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