Using net book values instead of gross book values to compute return on investment (ROI)might encourage an investment center manager to delay replacing inefficient assets until they are fully depreciated.

Question

Quizplus · Accepted Answer

Using net book values instead of gross book values makes the book value decreases as the asset ages. This might create an incentive for the manager to delay replacing inefficient assets until they are fully depreciated, as replacing an asset replaces a lower net investment with a larger one.

Using Net Book Values Instead of Gross Book Values to Compute