Exercise 22-9 Investment center analysis LO A1 You must prepare a return on inve

Question

Exercise 22-9 Investment center analysis LO A1

You must prepare a return on investment analysis for the regional manager of Fast & Great Burgers. This growing chain is trying to decide which outlet of two alternatives to open. The first location (A) requires a $500,000 investment and is expected to yield annual net income of $65,000. The second location (B) requires a $200,000 investment and is expected to yield annual net income of $40,000.

Compute the return on investment for each Fast & Great Burgers alternative.

Return on Investment Numerator / Denominator = ROI / = ROI Location A Location B

Explanation / Answer

Net income/Average invested assets = ROI Location A = 65000/500000= 13% Location B = 40000/200000 = 20%

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