There are two different restaurant chains that you have identified as potential investment opportunities. You are looking ofr a minimum required rate of return of 8% per year. As a starting point, you have the following information:
Restaurant X Restaurant Y
- Sales $10,000,000 $6,000,000
- Net Operating Income 200,000 300,000
- Average Operating Assets 2,000,000 3,000,000
a) Calculate the ROI for each restaurant
b) Calculate the residual income for each restaurant
Indicate which investment opportunity you would choose and why.