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: $\begin{array}{ll}
\underline{\text { Project }}&\underline{\text { Investment }}&\underline{\text { Controllable Margin}}&\underline{\text { ROl}} \
\text { Phoenix } & \$ 120,000&\$30,000&25\%\
\text { Chicago } & \$ 540,000&\$540,000&9.25\%
\end{array}$ 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: $\begin{array}{ll}
\underline{\text { Project }}&\underline{\text { Investment }}&\underline{\text { Controllable Margin}}&\underline{\text { ROl}} \
 \text { Phoenix } & \$ 120,000&\$30,000&25\%\
\text { Chicago } & \$ 540,000&\$540,000&9.25\%
\end{array}$ 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 current ROI is 12.5% ($250,000 / $2,000,000). The Phoenix project has an ROI of 25%, which is higher than the current ROI, so it will increase the division's ROI. The Chicago project has an ROI of 9.25%, which is lower than the current ROI, so it will not increase the division's ROI.

The Area Manager of the Red White and Brew Restaurants