Sunland Corporation uses a 7% minimum required rate of return. It is financed 70% with debt that carries an average 6% interest rate, and it averages an 8% cost of equity. Downtown Uptown Sales $349,000 $449,000 COGS GUT 221,000 292,000 Gross margin 128,000 157,000 Selling expenses 28.2 35,000 40,000 Administrative expenses 60,000 75,000 Operating income $33,000 $42,000 Income tax expense 8,250 10,500 Operating income after-tax $24,750 $31,500 Assets Cash $30,000 $35,000 Accounts receivable 12,000 21,000 Inventory 17,000 22,000 Fixed assets, net 216,000 225,000 Long-term investments 41,000 61,000 Total assets $316,000 $364,000 Liabilities and Equity Accounts payable $21,000 $42,000 Notes payable, long-term 45,000 29,000 Mortgage payable 195,000 231,000 Retained earnings 55,000 62,000 Total liabilities and equity $316,000 $364,000 Each location is considering one of the following two investments in long-term assets, where the asset would be depreciated using the straight-line method over its useful life. 1. 2. $45,500 for an updated and upgraded pizza oven that will allow for faster cooking times and less energy usage, with an estimated improvement in operating income of $14,000 each year (before depreciation) over its 7-year life. $45,500 to update the atmosphere and seating capacity of the restaurant, with an anticipated operating income increase of $12,000 per year (before depreciation) over a 10-year useful life, when it will be updated again. Calculate the ROI of each potential investment on its own. (Round answers to 4 decimal places, e.g. 0.1526.) ROI Option 1 Option 2 If each business unit is motivated to improve its own ROI, which of these investments (if either) would each manager choose? Option 1 Assuming each moves ahead with your recommendation, calculate the total ROI each location would report at the end of next year, assuming all other operating aspects are unchanged from the prior year. (Round answers to 4 decimal places, e.g. 0.1526.) ROI Downtown Uptown