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 assets had an estimated useful life of 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 gross book value?

\begin{array} { l r r r } & \text { Year } 1 & \text { Year } 2 & \text { Year 3 } \\\end{array}

\begin{array} { l r r r } & 20.0 \% & 25.0 \% & 30.5 \% \\\end{array}

\begin{array} { l r r r } & 25.0 \% & 28.0 \% & 32.0 \% \\\end{array}

\begin{array} { l r r r } & 18.0 \% & 26.5 \% & 28.0 \% \\\end{array}

\begin{array} { l r r r } & 30.0 \% & 35.0 \% & 40.5 \%\end{array}

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

The Measure (Ratio) That Reflects the Performance of a Manager

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