Decision making with return on investment You are the controller of a chain of dry-cleaning establishments. You are computing the return on invest¬ ment for each outlet.

Outlet A, located in a city core, reported a net profit of $130,000. The land on which Outlet A is located was essentially rural when it was purchased for $100,000. Since then, the city has expanded and the land is located in the population center. Comparable undeveloped land in the immediate area of the outlet is worth $2,000,000. The net book value of the outlet building and equipment is $400,000. The replacement cost of the building and equipment is $1,200,000. If the outlet building, equipment, and land were sold as a going concern, the sale price would be $1,500,000. It would cost $250,000 to demolish the building and clear the property for commercial development.

REQUIRED

(a) What is the return on this investment?

(b) How would you decide whether this outlet should continue to be oper¬ ated, sold as a going concern, or demolished and the land sold?

(LO 1)