Question

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 $80,000. The second location (B) requires a $200,000 investment and is expected to yield annual net income of $44,000. Compute the return on investment for each Fast & Great Burgers alternative. Using return on investment as your only criterion, which location (A or B) should the company open? (The chain currently generates an 22% return on total assets.)

Answer 1

Answer and Explanation:

The computation of the return on investment is shown below:

For location A, it is

= $80,000 ÷ $500,000

= 16%

And, for location B it is

= $44,000 ÷ $200,000

= 23%

On the basis of the return on investment, the company should prefer for location B as it contains high return on investment

Therefore the same is to be considered