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16 July, 10:21

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

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  1. 16 July, 12:37
    0
    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.
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