Assume U.S. GAAP. A company has equipment with an original cost of $850,000, accumulated amortization of $300,000, and 5 years of estimated remaining useful life. Due to a change in market conditions, the company now estimates that the equipment will only generate cash flows of $80,000 per year over its remaining useful life. The company's incremental borrowing rate is 8 percent. Which of the following statements concerning impairment and future return on assets (ROA) is most accurate? The asset is ______

Explanation: The equipment is impaired. NBV = $550,000 which is greater than the sum of the undiscounted cash flows (5 yrs x $80,000 = $400,000). The company's future ROA will increase. Once the asset is written down, there will be lower depreciation charges, which will increase net income, and a lower carrying value of assets, which decreases total assets. Both factors would increase any future ROA.