Appleton’s owns and operates a variety of casual dining restaurants in three cities: St. Louis, Memphis, and New Orleans. Each geographic market is considered a separate division. The St. Louis division includes four restaurants, each built in early 2004. The Memphis division consists of three restaurants, each built in January 2008. 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 2014:

1. Calculate ROI for each division using net book value of total assets.
2. Using the technique in Exhibit 23-2, compute ROI using current-cost estimates for long-term assets and depreciation expense. The construction cost index for 2014 is 122. Estimated useful life of operational assets is 15 years.
3. How does the choice of long-term asset valuation affect management decisions regarding new capital investments? Why might this choice be more significant to the St. Louis division manager than to the New Orleans divisionmanager?

  • CreatedMay 14, 2014
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