Reference no: EM133006408

Conventional and Strategic Performance Measurement System

The Jasmin enterprise is a leading builder of luxury houses. It operates its business in a building in downtown Auckland City. The building was built in 1952 at a cost of $650,000 and is fully depreciated so that it is shown on the company's balance sheet at a nominal value of $1. The land on which the building was built in 1952 was purchased in 1948 for $120,000. The company does not charge depreciation/appreciation on the value of the land for balance sheet purposes. The franchise, which is the company's only other major investment, cost $250,000 in 1952. The franchise cost has now been fully amortized. The current assessed value of the building is $200,000. The assessed value of the land, which is located in a prime urban area, is $20,000,000 and reflects the net value of the property if the current building is demolished and replaced with an office and shopping complex. The company adopts traditional performance evaluation system.

Problem 1: Assume that Jasmin earns an income of $3,000,000 per year. What is the return on investment (ROI) using (i) average net book value and (ii) average historical cost as the measures of investment? Show your calculations.