- One Division Of The Marvin Educational Enterprises Has Depreciable Assets Costing 4 000 000 The Cash Flows From These 1 (51.18 KiB) Viewed 13 times
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: Year 1 2 3 Cash flows $ 1,200,000 $ 1,400,000 $ 1,620,000 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 residual income for each year, assuming the cost of capital is 15% and Marvin uses historical costs and gross book values to compute residual income? A. B. C. D. Year 1 Year 2 Year 3 $ 620,000 $ 200,000 $ 400,000 $ 200,000 $ 200,000 $200,000 $450,000 $ 250,000 $200,000 $ 250,000 $ 400,000 $375,000 Multiple Choice Option A