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: $$\begin{array} { l c c c }
\text { Project } & \text { Investment } & \text { Controllable Margin } & \text { ROl }\
\text { Phoenix } & \$ 120,000 & \$ 30,000 & 25 \% \
\text { Chicago } & \$ 540,000 & \$ 50,000 & 9.25 \%
\end{array}$$ The Red White and Brew segment has currently $2000000 in invested capital and a controllable margin of $250000. 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: $$\begin{array} { l c c c } 
\text { Project } & \text { Investment } & \text { Controllable Margin } & \text { ROl }\
\text { Phoenix } & \$ 120,000 & \$ 30,000 & 25 \% \
\text { Chicago } & \$ 540,000 & \$ 50,000 & 9.25 \%
\end{array}$$ The Red White and Brew segment has currently $2000000 in invested capital and a controllable margin of $250000. Which one of following projects will increase the Red White and Brew division's ROI?

Quizplus · Accepted Answer

The ROI for the division before any project is calculated as $250,000 / $2,000,000 = 12.5%. The Phoenix project has an ROI of 25%, which is higher than the division's current ROI, thus it will increase the overall ROI. The Chicago project has an ROI of 9.25%, which is lower than the division's current ROI, so it would decrease the overall ROI.

The Area Manager of the Red White and Brew Restaurants