Open a store. (CMA, adapted) Voltaire, a renowned pastry chef employed at a four-star hotel, has decided to open his own exclusive pastry shop. He has $100,000 to invest and the information he has obtained is as follows: There is a 55% probability the market size in the area will be 600,000 pastries per year and a 45% chance it will be 450,000 pastries per year. Price per pastry is assumed to be $4.00 and this is the basis for predicting Voltaire's market share. Variable costs are $2.60 per pastry. The market share Voltaire will capture depends on where he locates. There are two possibilities: Location A costs $38,000 annual rent where Voltaire will capture 30% of the pastry market (his market share). Fixed costs excluding rent are estimated at $90,000 per year. Location B costs $12,000 annual rent where Voltaire will capture 22% of the pastry market (his market share). Fixed costs excluding rent are estimated at $54,000 per year.

REQUIRED 1. Based on your quantitative analysis what is the best choice of location for Voltaire?
2. There is a consultant who sells industry market information. How much should Voltaire be willing to pay to know with certainty what the total market size is?LO1

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Estimated Demand (Units) Selling Direct Material Price Cost per Unit Variable Machining Cost per Unit Nealy 1,800 $3,000 $750 $600 Tersa 4,500 $2,100 $500 $500 Pelta 39,000 $ 800 $100 $200