Abstract
In most financial management textbooks and courses, new investment projects are evaluated by comparing the return earned and the total capital invested, both debt and equity. In contrast, in the hospitality industry the return to just the equity capital is often used. This article shows that the two approaches, when properly calculated, will give the same accept or reject decision, but the return on equity calculation must be used with caution to avoid serious errors involving the use of debt. By understanding the two methods, hospitality financial managers will avoid confusion and make better investment decisions.
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