Hayes Division, which is located in a remote area in Northern Ontario, has been stagnant over the past five years, neither growing nor contracting in size and profitability. Investments in new property, plant, and equipment have been minimal. Would the division's use of total assets (valued at net book value) when measuring ROI result in (1) using numbers that are consistent with those on the balance sheet and (2) a rising ROI over time? $\begin{array} { | l | c | c | }
\hline & \begin{array} { c }
\text { Consistent with Numbers } \
\text { on the Balance Sheet? }
\end{array} & \begin{array} { c }
\text { Produce a Rising Return on } \
\text { Investment Over Time? }
\end{array} \
\hline 1 & \text { Yes } & \text { Yes } \
\hline 2 & \text { Yes } & \text { No } \
\hline 3 & \text { No } & \text { Yes } \
\hline 4 & \text { No } & \text { No } \
\hline 5 & \text { Yes } & \text { Need more information to judge } \
\hline
\end{array}$

Question

Hayes Division, which is located in a remote area in Northern Ontario, has been stagnant over the past five years, neither growing nor contracting in size and profitability. Investments in new property, plant, and equipment have been minimal. Would the division's use of total assets (valued at net book value) when measuring ROI result in (1) using numbers that are consistent with those on the balance sheet and (2) a rising ROI over time? $\begin{array} { | l | c | c | } 
\hline & \begin{array} { c } 
\text { Consistent with Numbers } \
\text { on the Balance Sheet? }
\end{array} & \begin{array} { c } 
\text { Produce a Rising Return on } \
\text { Investment Over Time? }
\end{array} \
\hline 1 & \text { Yes } & \text { Yes } \
\hline 2 & \text { Yes } & \text { No } \
\hline 3 & \text { No } & \text { Yes } \
\hline 4 & \text { No } & \text { No } \
\hline 5 & \text { Yes } & \text { Need more information to judge } \
\hline
\end{array}$

Quizplus · Accepted Answer

Using total assets (valued at net book value) when measuring ROI would be consistent with the numbers on the balance sheet. This is because net book value is the value of the asset reflected on the balance sheet after depreciation has been taken into account. As for producing a rising return on investment over time, this depends on whether the division is able to increase its net income over time while keeping the total assets relatively constant. If the division is able to do so, then using total assets would result in a rising ROI over time.

Hayes Division, Which Is Located in a Remote Area in Northern