Question

the following information was presented by outdoors manufacturing company for an asset purchased at the beginning of the previous year. original cost of the asset $ 20,000 useful life of the asset 10 years cash flow annual operating profit $ 4,000 salvage value $ -0- what is the return on investment (roi) assuming outdoors uses (a) the straight-line method for depreciation and (b) beginning-of-year net book values to compute roi?

Answer 1

The return on investment is 11.11%.

Define return on investment.

Return on investment, also referred to as return on costs, is the ratio of net income to investments. If the ROI is large, the investment's benefits outweigh its costs. ROI is a performance statistic that is used to evaluate an investment's efficacy or to compare the efficacy of various other investments.

Original cost of the asset = $ 20,000

Useful life of the asset = 10 years

Cash flow annual operating profit = $ 4,000

Salvage value = $0

Depreciation expense = (20000-0) / 10 years

                                      = 2000

Net income = Cash flow annual operating profit - Depreciation expense

                    = 4,000 - 2000

                    = 2000

ROI = 2000 / 18000

      = 11.11%

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