Fundamentals of Cost Accounting 2nd Edition by William Lanen, Carolyn Wells, Michael Maher

Exercise 8

ROI versus RI
Adivision is considering the acquisition of a new asset that will cost $720,000 and have a cash flow of $280,000 per year for each of the five years of its life. Depreciation is computed on a straight-line basis with no salvage value. Ignore taxes.
Required
a. What is the ROI for each year of the asset's life if the division uses beginning-of-year asset balances and net book value for the computation
b. What is the residual income each year if the cost of capital is 25 percent