Answer: 18%
Step-by-step explanation:
To calculate the ROI (Return on Investment) for Tellco in 2019, we need to determine the company's net profit after taxes and divide it by the company's average total assets for the year. Here's how we can calculate this with the given information:
First, we need to adjust the initial cost of the machine to reflect the amount that should have been capitalized, as opposed to expensed. The amount that should have been capitalized is $100,000, so we need to add this to the initial cost of the machine to get the total cost to be depreciated over 8 years:
Total cost of the machine = Initial cost of the machine + Interest, installation, and overhead costs
Total cost of the machine = $0 + $100,000
Total cost of the machine = $100,000
Now we can calculate the annual depreciation expense for the machine using the straight-line method:
Annual depreciation expense = Total cost of the machine / Useful life
Annual depreciation expense = $100,000 / 8
Annual depreciation expense = $12,500 per year
Next, we can calculate the net profit after taxes for Tellco in 2019:
Net profit after taxes = Net income - Interest expense - Depreciation expense - Taxes
Net profit after taxes = $750,000 - $0 - $12,500 - ($750,000 * 35%)
Net profit after taxes = $450,625
Finally, we can calculate the ROI for Tellco in 2019, assuming that the $100,000 had been capitalized and depreciated over 8 years using the straight-line method:
ROI = Net profit after taxes / Average total assets
Average total assets = ($5,000,000 + $0) / 2
Average total assets = $2,500,000
ROI = $450,625 / $2,500,000
ROI = 0.18 or 18%
Therefore, the ROI for Tellco in 2019, assuming that the $100,000 had been capitalized and depreciated over 8 years using the straight-line method, is 18%.