Decision Making

DecisionMaking

Table 3: Annualized Costs

Risk Event

Remodel

Do Not Remodel

Urban Renaissance

-$2,190,000

-$1,642,500

Status Quo

-$930,750

-$620,500

Downtown Deteriorates

-$547,500

-$365,000

Table 5: Annualized Revenues

Risk Event

Remodel

Do Not Remodel

Urban Renaissance

$5,110,000

$3,285,000

Status Quo

$1,642,500

$912,500

Downtown Deteriorates

$766,500

$365,000

Table 6: Analysis of Net Revenues and Risk (Note: Includes Revenues minus Costs)

Risk Event

Probability of Event

Net Revenue (without risk discounting)

Net Revenue Discounting for Risk

Remodel

Do Not Remodel

Remodel

Do Not Remodel

Urban Renaissance

0.3

$2,920,000

$1,642,500

$876,000

$492,750

Status Quo

0.5

$711,750

$292,000

$355,875

$146,000

Downtown Deteriorates

0.2

$219,000

$0

$43,800

$0

Total Net Revenue Discounting for Risk

$1,275,675

$638,750

Decision

Basedon the Total net revenues (Table 6), purchasing Tavaglione ItalianRestaurant and remodeling is the most appropriate decision as itaccrues the highest net revenues even when the risk is discounted.The net revenue discounting for risk with remodeling is $ 1,275, 675as opposed to $ 638,750 without remodeling. Compared to Miyako’sJapanese Restaurant, which has expected revenue of $1, 000,000,purchasing Tavaglione Italian Restaurant is the most desirabledecision.

Reference

Munger, C. (1997. Business: whatlawyers should know. OutstandingInvestor Digest. Dec,21, 1997