Computing Return on Assets
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In January 1999, a company was formed. Total assets were $500,000, of which $300,000 consisted of depreciable fixed assets. The company uses straight-line depreciation, and in 1999 it estimated its fixed assets to have useful lives of 10 years. After tax, income has been $26,000 per year each of the last 10 years. Other assets have not changed since 1999.
provide formulas and procedures to:
(a) Compute return on assets as year-end for 1999, 2001, 2004, 2006, and 2008. use $26,000 in the numberator for each year.
(b) To what do you attribute the phenomenon in part (a).
(c) Now assume income increased by 10 percent each year. What effect would this have on your answers above.
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Solution Summary
The solution computes return on asset for various years when income change over the years.
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