In determining the dollar amount to use for operating assets in the - 14828

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In determining the dollar amount to use for operating assets in the return on investment (ROI) calculation, companies will generally use either net book value or gross cost of the assets. Which of the following is an argument for the use of gross cost rather than net book value?

 

·       It is consistent with how assets are reported on the balance sheet.

 

·       It eliminates the depreciation method as a factor in ROI calculations.

 

·       It encourages the replacement of old, worn-out equipment.

Solution Description

 

In determining the dollar amount to use for operating assets in the return on investment (ROI) calculation, companies will generally use either net book value or gross cost of the assets. Which of the following is an argument for the use of gross cost rather than net book value?