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Assume that fast-food restaurants generally provide an ROI of 12%, but that such a restaurant near a college campus has an ROI of 15% because its relatively large volume of business generates an above-average tunover (sales/assets). The replacement value of the restaurant's plant and equipment is $600,000 If you were to invest that amount in a restaurant elsewhere in town, you could expect a 12% ROI. Required: a-1. Would you be willing to pay more than $600,000 for the restaurant near the campus? Yes a-2. What is the maximum price you would be willing to pay for the business? Maximum Price b. If you purchased the restaurant near the campus for $750,000 and the fair value of the assets you acquired was $600 000 identify the account along with ts balance that is used to record the additional amount paid over the fair value of the assets

Assume that fast-food restaurants generally provide an ROI of 12%, but that such a restaurant near a college campus has an ROI of 15% because its relatively large volume of business generates an above-average tunover (sales/assets). The replacement value of the restaurant's plant and equipment is $600,000 If you were to invest that amount in a restaurant elsewhere in town, you could expect a 12% ROI. Required: a-1. Would you be willing to pay more than $600,000 for the restaurant near the campus? Yes a-2. What is the maximum price you would be willing to pay for the business? Maximum Price b. If you purchased the restaurant near the campus for $750,000 and the fair value of the assets you acquired was $600 000 identify the account along with ts balance that is used to record the additional amount paid over the fair value of the assets

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Assume that fast-food restaurants generally provide an ROI of 12%, but that such a restaurant near a college campus has an ROI of 15% because its relatively large volume of business generates an above-average tunover (sales/assets). The replacement value of the restaurant's plant and equipment is $600,000 If you were to invest that amount in a restaurant elsewhere in town, you could expect a 12% ROI. Required: a-1. Would you be willing to pay more than $600,000 for the restaurant near the campus? Yes a-2. What is the maximum price you would be willing to pay for the business? Maximum Price b. If you purchased the restaurant near the campus for $750,000 and the fair value of the assets you acquired was $600 000 identify the account along with ts balance that is used to record the additional amount paid over the fair value of the assets
Transcribed Image Text:Assume that fast-food restaurants generally provide an ROI of 12%, but that such a restaurant near a college campus has an ROI of 15% because its relatively large volume of business generates an above-average tunover (sales/assets). The replacement value of the restaurant's plant and equipment is $600,000 If you were to invest that amount in a restaurant elsewhere in town, you could expect a 12% ROI. Required: a-1. Would you be willing to pay more than $600,000 for the restaurant near the campus? Yes a-2. What is the maximum price you would be willing to pay for the business? Maximum Price b. If you purchased the restaurant near the campus for $750,000 and the fair value of the assets you acquired was $600 000 identify the account along with ts balance that is used to record the additional amount paid over the fair value of the assets
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