Goodwill effect on ROI 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 restaurant’s plant and equipment is $200,000. If you were to invest that amount in a restaurant elsewhere in town, you could expect a 15% ROI.
Required:
a. Would you be willing to pay more than $200,000 for the restaurant near the campus? Explain your answer.
b. If you purchased the restaurant near the campus for $240,000 and the fair value of the assets you acquired was $200,000, what balance sheet accounts would be used to record the cost of the restaurant?
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