Chapter 23, Problem 23.34P

ROI, measurement alternatives for performance measures 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 2007. The Memphis division consists of three restaurants, each built in January 2011. 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 2017:

1. 1. Calculate ROI for each division using net book value of total assets. Required
2. 2. Using the technique in Figure 23-2, compute ROI using current-cost estimates for long-term assets and depreciation expense. The construction cost index for 2017 is 122. Estimated useful life of operational assets is 15 years.
3. 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 division manager?