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P.F. Skidaddle's operates casual dining restaurants in three regions: Denver, Seattle and Sacramento. Each geographic market is considered a separate division. The Denver division is made up of four resturants, each built in early 2002. The Seattle division is made up of three resturants, each built in January 2006. The Sacramento division is the newest, consisting of three restaurants built four years ago. Division managers at P.F. Skidaddle's are evaluated on the basis of ROI. The following information refers to the three divisions at the end of 2012 :


 Denver Seattle Sacramento Total
Division Rev $8365000 $6025000 $5445000 $20138000
Division Exp 7945000 5521000 4979000 18445000
Division Op Inc 723000 504000 466000 1693000
Gross BV of long-term assets 4750000 3750000 4050000 12300000
Acc Dep 3300000 1750000 1080000 6130000
Current Assets 999800 768200 824600 2592600
Dep Exp 300000 250000 270000 820000
Construction cost index for year of construction 100 110 118

1. Calculate ROI for each division using net BV of total assets.

2. Using the technique in Exhibit 23-2, compute ROI using current-cost estimates for long-term assets and depreciation expense. Construction cost index for 2012 is 122. Estimated useful life of operational assets is 15 years.

3. How does the choice of long-term asset valuation affect management deecisions regarding new capital investments? Why might this be more significant to the Denver division manager than to the Sacramento division manager?

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  • Reference No.:- M9946803

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