One Division of the Marvin Educational Enterprises Has Depreciable Assets

Multiple Choice

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:
$$\begin{array} { c l l } \text { Year } & { \text { Cash flows } } \\1 & \mathbf { \$ } 1,200,000 \\2 & \$ 1,400,000 \\3 & \$ 1,620,000\end{array}$$
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 ROI using historical cost and net book value?
$\begin{array} { l r r r } & \text { Year } 1 & \text { Year 2 } & \text { Year 3 } \\\end{array}$
A) $\begin{array} { l r r r } & 21.5 \% & 34.0 \% & 42.0 \% \\\end{array}$
B) $\begin{array} { l r r r } & 22.2 \% & 31.3 \% & 43.0 \% \\\end{array}$
C) $\begin{array} { l r r r } & 23.0 \% & 32.0 \% & 47.0 \% \\\end{array}$
D) $\begin{array} { l r r r } & 24.9 \% & 35.0 \% & 49.5 \%\end{array}$

A) Option A
B) Option B
C) Option C
D) Option D