Nancy couldn't believe it. The small piece of undeveloped property adjacent to her restaurant just went up for sale! She'd been waiting
for this day for years; she had dreamed of a lovely garden with outdoor customer seating. Given the trend for rustic environments, she
could set out her existing dining tables and be ready for outdoor seating immediately. She even had financing available for this
purchase. The timing might be tricky though; her location was one of many under the corporate umbrella, and executives had just
rolled out more stringent goals for each location. Nancy's location generated a 12% ROI last year and was on track to maintain that
level this year.
Nancy is evaluated on the following for her location: (1) maintaining or improving ROI and (2) generating positive EVA. The property
was listed for $850,000, and she would need to finance all of it. Corporate's tax rate was 24%, its average debt rate was 4%, and its
cost of equity was 8%. Currently, corporate's financial position reflected 60% debt and 40% equity financing. The purchase of this land
would bump up the debt proportion to 65%. Still, Nancy anticipated additional operating income of $45,900 associated with this new
space through year-end
(a)
What is the projected ROI for this land purchase? Round anaver to 3 decimal places, eg 0.152)
Projected ROI
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(b)
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(c)
The parts of this question must be completed in order. This part will be available when you complete the part above