Calculate the roi for tellco for 2019

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Reference no: EM133390226

Assignment:

Problem 6.22 Capitalizing v. Expensing - Effect on ROI

Early Jan. 2019, Tellco Inc acquired a new machine and incurred $100,000 of interest, installation and overhead costs that should have been capitalized but were expensed. The company earned net operating income of $750,000 on average total assets of $5,000,000 for 2019. Assume that the total cost of the new machine will be depreciated over 8 years using the straight-line method.

Calculate the ROI for Tellco for 2019
Calculate the ROI for Tellco for 2019, assuming that the $100,000 had been capitalized and depreciated over 8 years using the straight-line method. (HINT: there is an effect on net operating income and average assets)
Given your answers to A and B, why would the company want to account for this expenditure as an expense?
Assuming that the $100,000 is capitalized, what will be the effect on ROI for 2020 and subsequent years, compared to expensing the interest, installation and overhead costs in 2019? Explain.

Reference no: EM133390226

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