Question

BC Corporation is a business that provides carwash service. In the year 2020, the business already has four carwash centres, for which two of it are in Taman Melawati and Bukit Antarabangsa.    

The information related to both centres for June 2020 are as follows:

	Taman Melawati (RM)	Bukit Antarabangsa (RM)
Fixtures and Fittings	40,000	30,400
Equipment	29,000	22,100
Other assets	49,000	43,900
Sales	24,300	19,800
Profit	17,700	12,050

In addition, rate of return for Taman melawati centre is 12%, whilst the rate for Bukit Antarabangsa is 5% less than Taman Melawati centre.

Required:

(a) Determine Return on Investment (ROI) and Residual Income (RI) for both carwash centres (Taman Melawati and Bukit Antarabangsa).

(b)  Another carwash centre is in Selayang, which has on operating profit of RM18,700 and average assets with a book value of RM107,570. Vegan Corporation expects this centre to has 14% rate of return. Calculate its Return on Investment (ROI) and Residual Income (RI).

(c)  Which of these TWO (2) centres are performing the best? Justify your answer based on your answer in (a).

Answer 1

Requirement A:

Particulars	Taman Melawati	Bukit Antarabangsa
Profit	17700	12050
Investment	118000	96400
Return on Investment = Profit/Investment	15.0%	12.5%
MARR	12%	5%
Residual Income = Profit - [MARR*investment]	3540	7230

Requirement B:

Particulars	Selayang
Profit	18700
Investment	107570
Return on Investment = Profit/Investment	17.4%
MARR	14%
Residual Income = Profit - [MARR*investment]	3640

Requirement C:

In terms of Return on Investment, Taman Melawati center is Performing the Best.

In Terms of Residual Income, Bukit Antarabangsa center is performing the Best.

Return on Investment project is to be considered as a better performance measure as it will be measured in Percentage terms. So, Taman Melawati center is performing better.