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The current investment RM1,100,000 and expense increase profits by RM30,0 The current investment in th RM1,760,000 and expense should increase its profit by

The current investment RM1,100,000 and expense increase profits by RM30,0 The current investment in th RM1,760,000 and expense should increase its profit by

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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Pak Tam Burger (PTB) has two fast food outlets, KLCC and AmCorp Mall, are among the fastest-growing outlets. Both are considering to expand their menus to include pizza. Purchase and installation of the necessary equipment costs RM180,000 per outlet. The current investment in the KLCC outlet totals RM900,000. Outlet revenues are RM1,100,000 and expenses are RM920,000. Expansion of the KLCC's menu should increase profits by RM30,000. The current investment in the AmCorp Mall totals RM1,700,000. The outlet's revenues are RM1,760,000 and expenses are RM1,496,000. Adding pizza to AmCorp Mall's menu should increase its profit by RM30,000. PTB evaluates its manager based on return on investment (ROI). Managers of individual outlets have decision over the pizza expansion. Required: a) Calculate the return on investment (ROI): i) for both outlets before pizza is added ii) for the pizza project only iii) for both outlets after expansion b) Assuming a 14 percent cost of capital, calculate residual income (RI): i) for both outlets before expansion ii) for the pizza project only iii) for both outlets after the potential expansion c) Will the two PTB outlets choose to expand? Why?
Transcribed Image Text:Pak Tam Burger (PTB) has two fast food outlets, KLCC and AmCorp Mall, are among the fastest-growing outlets. Both are considering to expand their menus to include pizza. Purchase and installation of the necessary equipment costs RM180,000 per outlet. The current investment in the KLCC outlet totals RM900,000. Outlet revenues are RM1,100,000 and expenses are RM920,000. Expansion of the KLCC's menu should increase profits by RM30,000. The current investment in the AmCorp Mall totals RM1,700,000. The outlet's revenues are RM1,760,000 and expenses are RM1,496,000. Adding pizza to AmCorp Mall's menu should increase its profit by RM30,000. PTB evaluates its manager based on return on investment (ROI). Managers of individual outlets have decision over the pizza expansion. Required: a) Calculate the return on investment (ROI): i) for both outlets before pizza is added ii) for the pizza project only iii) for both outlets after expansion b) Assuming a 14 percent cost of capital, calculate residual income (RI): i) for both outlets before expansion ii) for the pizza project only iii) for both outlets after the potential expansion c) Will the two PTB outlets choose to expand? Why?
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