Question
Assume that fast-food restaurants generally provide an ROI of 15%, but that such a restaurant near a college campus has an ROI of 18% because
Assume that fast-food restaurants generally provide an ROI of 15%, but that such a restaurant near a college campus has an ROI of 18% because its relatively large volume of business generates an above-average turnover (sales/assets). The replacement value of the restaurants plant and equipment is $198,000. If investors were to invest that amount in a restaurant elsewhere in town, they could expect a 15% ROI.
Required:
a. 1. Would investors be willing to pay more than $198,000 for the restaurant near the campus?
2. What is the maximum price you would be willing to pay for the business? * Do not round intermediate calculations.
b. If an investor group purchased the restaurant near the campus for $237,600 and the fair value of the assets they acquired was $198,000, identify the account along with its balance, that is used to record the additional amount paid over the fair value of the assets.
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