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-1. Would you be willing to pay more than $200,000 for the restaurant near the campus?
No
Yes
a-2. What is the maximum price willing to pay for the business?
b. If you purchased the restaurant near the campus for $240,000 and the fair value of the assets you acquired was $200,000, identify the account used to record this amount, along with its balance.