The Oriental Food Company is a chain of over 40 restaurants serving middle eastern style food. Each restaurant is treated by the company as an investment centre. Two of its restaurants are considering expanding their menu by building a traditional wood fired bread oven, which would allow them to add a special type of bread to the menu. Each restaurant would have to invest 20,000 in this project. The first restaurant (Northern") is located in a mid-size city in the north of the country. The second ("Southern) is located in a larger southern city. The total assets of the Northern restaurant equal 550,000. Its revenues are 250,000 and expenses are 160,000. The new bread oven is expected to generate an increase in profit of 5,100. The total assets of the Southern restaurant equal 800,000. Its revenues are 340,000 and expenses are 180,000. The new bread oven is expected to generate an increase in profit of 5,700. The managers of the two restaurants have the autonomy to decide whether or not to go ahead with the new oven project. The Oriental Food Company evaluates restaurant managers based on return on investment (ROI). The company-wide opportunity cost of capital is 18%. Required: a) Will the manager of the Northern restaurant decide to invest in the new bread oven? Explain your answer. b) Will the manager of the Southern restaurant decide to invest in the new bread oven? Explain your answer. c) From the perspective of the company as a whole, should the Northern restaurant build the new bread oven? Explain your answer. d) From the perspective of the company as a whole, should the Southern restaurant build the new bread oven? Explain your answer. e) Assuming a 18% required rate of return, calculate the residual income (RI) of the bread oven project. f) If RI, as opposed to ROI, was used to evaluate the performance of the two restaurant managers, how would each manager's decision concerning the bread oven project change, if at all? From the perspective of the company as a whole, which performance measure achieves greater goal congruence, RI or ROI? Explain your answer. The Oriental Food Company is a chain of over 40 restaurants serving middle eastern style food. Each restaurant is treated by the company as an investment centre. Two of its restaurants are considering expanding their menu by building a traditional wood fired bread oven, which would allow them to add a special type of bread to the menu. Each restaurant would have to invest 20,000 in this project. The first restaurant (Northern") is located in a mid-size city in the north of the country. The second ("Southern) is located in a larger southern city. The total assets of the Northern restaurant equal 550,000. Its revenues are 250,000 and expenses are 160,000. The new bread oven is expected to generate an increase in profit of 5,100. The total assets of the Southern restaurant equal 800,000. Its revenues are 340,000 and expenses are 180,000. The new bread oven is expected to generate an increase in profit of 5,700. The managers of the two restaurants have the autonomy to decide whether or not to go ahead with the new oven project. The Oriental Food Company evaluates restaurant managers based on return on investment (ROI). The company-wide opportunity cost of capital is 18%. Required: a) Will the manager of the Northern restaurant decide to invest in the new bread oven? Explain your answer. b) Will the manager of the Southern restaurant decide to invest in the new bread oven? Explain your answer. c) From the perspective of the company as a whole, should the Northern restaurant build the new bread oven? Explain your answer. d) From the perspective of the company as a whole, should the Southern restaurant build the new bread oven? Explain your answer. e) Assuming a 18% required rate of return, calculate the residual income (RI) of the bread oven project. f) If RI, as opposed to ROI, was used to evaluate the performance of the two restaurant managers, how would each manager's decision concerning the bread oven project change, if at all? From the perspective of the company as a whole, which performance measure achieves greater goal congruence, RI or ROI? Explain your
