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: $\begin{array}{lllr}\text { Project } &\text {Investment } &\text {Controllable Marain } &\mathrm{RO}\
\text { Phoenix } & \$ 120,000 & \$ 30,000 & 25 \% \
\text { Chicago } & \$ 540,000 & \$ 50,000 & 9.25 \%
\end{array}$ The Red, White, and Brew segment has currently $2,000,000 in invested capital and a controllable margin of $250,000. Which one of following projects will increase the Red, White, and Brew division's ROI?

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: $\begin{array}{lllr}\text { Project } &\text {Investment } &\text {Controllable Marain }  &\mathrm{RO}\
\text { Phoenix } & \$ 120,000 & \$ 30,000 & 25 \% \
\text { Chicago } & \$ 540,000 & \$ 50,000 & 9.25 \%
\end{array}$ The Red, White, and Brew segment has currently $2,000,000 in invested capital and a controllable margin of $250,000. Which one of following projects will increase the Red, White, and Brew division's ROI?

Quizplus · Accepted Answer

The Phoenix project has an ROI of 25%, which is higher than the current division's ROI of 12.5% (calculated as $250,000 / $2,000,000). The Chicago project's ROI of 9.25% is lower than the current division's ROI, so it would not increase the division's overall ROI.

The Area Manager of the Red, White, and Brew Restaurants