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The Ste. Marie Division of Pacific Media Corporation just started operations. It purchased depreciable assets...

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Accounting

The Ste. Marie Division of Pacific Media Corporation just started operations. It purchased depreciable assets costing $125 million and having a four-year expected life, after which the assets can be salvaged for $ 25 million. In addition, the division has $125 million in assets that are not depreciable. After four years, the division will have $125 million available from these nondepreciable assets. This means that the division has invested $ 250 million in assets with a salvage value of $150 million. Annual depreciation is $ 25 million. Annual operating cash flows are $68 million. In computing ROI, this division usesend-of-year assetvalues in the denominator. Depreciation is computed on a straight-line basis, recognizing the salvage values noted. Ignore taxes. Assume that the company uses a 12 percent cost of capital.

Required:

a.Compute residual income, using net book value for each year.

b.Compute residual income, I using gross book value for each year.

(Enter your answers in thousands of dollars.)

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