Question

You must prepare a return on investment analysis for the regional manager of Fast & Great Burgers. This growing chain is trying to decide which outlet of two alternatives to open. The first location (A) requires a $500,000 investment and is expected to yield annual net income of $80,000. The second location (B) requires a $200,000 investment and is expected to yield annual net income of $44,000. Compute the return on investment for each Fast & Great Burgers alternative.

Answer 1

Answer and Explanation:

The formula to compute the return on investment is shown below:

Return on investment = Annual net Income ÷ Investment

For First location A , the return on investment is

= $80,000 ÷ $500,000

= 16%

And, for the second location B, the return on investment is

= $44,000 ÷ $200,000

= 22%

Based on the above formula we can easily find the return on investment for both the locations