Question

Which of the following would be an argument for using the gross cost of plant and equipment as part of operating assets in return on investment computations? a. It is consistent with the conputation of net operating income, which includes depreciation as an operating expense.b. It is consistent with the balance sheet preventation of plant and equipment. c. It eliminates the age of equipment as afactor in ROI computations d. It discourages the replacement of old worn-out eqipmt because of the dramatic, advene effect on RO.

Answer 1

Answer:

c. It eliminates the age of equipment as a factor in ROI computations

Explanation:

As we know that

The formula to compute the return on investment is shown below:

Return on Investment = Net Income ÷ Cost of  Investments

Also, the gross value does not includes the depreciation expense, operating expense as the depreciation expense is a non cash expense

Therefore it eliminates the equipment age as a factor for the calculation of return on investment

hence, the correct option is c.