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28 Sep 2019
Assume that fast-food restaurants generally provide an ROI of15%, but that such a restaurant near a college campus has an ROI of18% because its relatively large volume of business generates anabove-average turnover (sales / assets). The replacement value ofthe restaurant's plant and equipment is $200,000. If you were toinvest that amount in a restaurant elsewhere in town, you couldexpect a 15% ROI.
Required: a-1.
Would you be willing to pay more than $200,000 for therestaurant near the campus?
No Yes
a-2.
What is the maximum price willing to pay for the business?
b.
If you purchased the restaurant near the campus for $240,000 andthe fair value of the assets you acquired was $200,000, identifythe account used to record this amount, along with its balance.
Assume that fast-food restaurants generally provide an ROI of15%, but that such a restaurant near a college campus has an ROI of18% because its relatively large volume of business generates anabove-average turnover (sales / assets). The replacement value ofthe restaurant's plant and equipment is $200,000. If you were toinvest that amount in a restaurant elsewhere in town, you couldexpect a 15% ROI.
| Required: | |||||
a-1. | Would you be willing to pay more than $200,000 for therestaurant near the campus? | ||||
| |||||
a-2. | What is the maximum price willing to pay for the business? |
b. | If you purchased the restaurant near the campus for $240,000 andthe fair value of the assets you acquired was $200,000, identifythe account used to record this amount, along with its balance. |
Beverley SmithLv2
28 Sep 2019