Principles of Corporate of Finance Ch12

[batman]

I have a question on Ch12 of the international edition. On page 327 Table 12.5 they are calculating a cumulative net book value (550) and using it as the denominator for the ROI. Why are they calculating a cumulative value? Neither my professor nor my plant controller understand this. Could someone please explain?


:-? Thanks!!!

[Macroman]

not having the specific example handy it's hard to say too much. In particular I don't know why book value is appropriate.

I would say generally that accumulated firm or project value would be the appropriate denominator for any rate of return measure. Presumable the assets could be redeployed if they were not providing a satisfactory rate of return and this could be done at any time (in the abscense of statements to the contrary). So that as the project goes forward it should continue to produce satisfactory returns with respect to it's accumulated investment (or it would be cancelled/sold off/redeployed).