He receives a base salary plus a 25% bonus of his salary if he meets certain income goals. The information he has available for the analysis is shown here:
cost of the machine 2,000,000
income to be generated by the machine 1,000,000
income without the new machine 7,000,000
beginning of the year capital assets (without the machine) 8,000,000
end of year capital assests (without the machine) 8,400,000
tax rate 30%
minimum required rate of return 15%
weighted average cost of capital 9%
sales revenue without the machine 18,000,000
sales revenue with the machine 19,400,000
The manager is looking at several different measures to evaluate this decision. Answer the following questions:
1.How would ROI be affected if the invested capital were measured at gross book value, and the gross book values of the beginning and end of the year assets without the new machine were ?11,000,000 and ?11,800,000, respectively?