Exercise 9-9 Investment center analysis LO A1You must prepare a return on investment analysis for the regional manager of Fast & Great Burgers. This growing chain is trying to decide which outlet of two alternatives to open. The first location (A) requires a $500,000 investment and is expected to yield annual net income of $80,000. The second location (B) requires a $200,000 investment and is expected to yield annual net income of $42,000. Compute the return on investment for each Fast & Great Burgers alternative.

The return on investment (ROI) is the ratio between the benefits from a particular investment divided by the total costs of that investment. Mathematically:

[tex]\frac{Benefits}{Investment}*100=ROI[/tex]

Now we can replace the data from the exercise in the formula to later interpret the results.

For the first location (A), the ROI is calculated:

[tex]\frac{80,000}{500,000} *100= 16[/tex]%

This result indicates that for each dollar invested, the business will get yearly profits of 16 cents on that dollar, for each dollar invested.

As for the second location (B), the ROI is:

[tex]\frac{42,000}{200,000} *100=21[/tex]%

Which has a similar interpretation as the first result.

If we compare both results, it's not hard to see that location B has a higher return on investment than location A. This means that investing in location B is more profitable.