A growing chain is trying to decide which store location to open. The first location (A) requires a $500,000 investment in average assets and is expected to yield annual income of $75,000. The second location (B) requires a $200,000 investment in average assets and is expected to yield annual income of $38,000.(1) Compute the expected return on investment for each location.
Question
A growing chain is trying to decide which store location to open. The first location (A) requires a 75,000. The second location (B) requires a 38,000.(1) Compute the expected return on investment for each location.
Solution
To calculate the expected return on investment (ROI) for each location, you need to divide the expected annual income by the investment in average assets and then multiply by 100 to get the percentage.
For location A:
- Divide the expected annual income (500,000). This equals 0.15.
- Multiply 0.15 by 100 to get the ROI as a percentage. This equals 15%.
For location B:
- Divide the expected annual income (200,000). This equals 0.19.
- Multiply 0.19 by 100 to get the ROI as a percentage. This equals 19%.
So, the expected ROI for location A is 15% and for location B is 19%.
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