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: $\begin{array}{lllr}\text { Project }&\text { Investment }&\text { Controllable Margin }&ROI\
\text { Phoenix } & \$ 120,000 & \$ 30,000 & 25 \% \
\text { Chicago } & \$ 540,000 & \$ 50,000 & 9.25 \%
\end{array}$ 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?
A)Both the Phoenix and Chicago options
B)Only the Phoenix option
C)Only the Chicago option
D)Neither the Phoenix nor the Chicago options

Question

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 decrease the division's ROI.

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