Appleton’s operates casual dining restaurants in three regions: St. Louis, Memphis, and New Orleans. Each geographic market is considered a separate division. The St. Louis division is made up of four restaurants, each built in early 2003. The Memphis division is made up of three restaurants, each built in January 2007. The New Orleans division is the newest, consisting of three restaurants built 4 years ago. Division managers at Appleton’s are evaluated on the basis of ROI. The following information refers to the three divisions at the end of 2013:

1. Calculate ROI for each division using net book value of total assets.
2. Compute ROI using current- cost estimates for long- term assets and depreciation expense. Construction cost index for 2013 is 122. Estimated useful life of operational assets is 15 years.
3. How does the choice of long- term asset valuation affect management decisions about new capital investments? Why might this choice be more significant to the St. Louis division manager than to the New Orleans divisionmanager?

  • CreatedJanuary 15, 2015
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