Question

The area manager of the Red, White, and Brew Restaurants is considering two possible expansion alternatives. The required investments, expected controllable margins, and the ROIs of each are as follows:
Project Investment Controllable Margin ROI
Phoenix $120,000 $30,000 25%
Chicago $540,000 $50,000 9.25%
The Red, White, and Brew segment has currently $2,000,000 in invested capital and a controllable margin of $250,000.
1. Which one of following projects will increase the Red, White, and Brew division’s ROI?
O Both the Phoenix and Chicago optionsO Only the Phoenix optionO Only the Chicago optionO Neither the Phoenix nor the Chicago options

Answer 1

Answer:

Only the Phoenix

Explanation:

According to the scenario, computation of the given data are as follow:-

ROI of Red, White And Brew Segment = Controllable Margin ÷ Total Investment × 100

$250,000 ÷ $2,000,000 × 100 = 12.5%

ROI of Phoenix = 25%

ROI of Chicago = 9.25%

So only phoenix will increase the red, white and brew division’s ROI, Because Chicago ROI is less than ROI of Red, White and Brew Segment.