After working for years as a chef and a stint on the TV show "Top Chef", your friend Jean is thinking about opening her own restaurant and has asked you to help with her financial analysis. To open the restaurant she will have to quit her current job, which pays $46k a year.

Basic expenses: She will have to invest her savings of $200k (currently earning 6% annually) in equipment. She estimates she will have to spend $4k each year to maintain the equipment. She would not pay rent, though: a year ago her father gave her title to a small building near a new waterfront development area, whose current tenant is a shopkeeper. The current tenant uses the entire building and pays $2,500per monthin rent. The tenant would have to vacate the property for Jean to open her restaurant.

Other expenses:She anticipates spending $50k a year for food, $40k for extra help, and $14k for utilities and other supplies during the first year of operations.

a)How muchrevenuedoes Jean have to generate in the firstyearof restaurant operations to make it worthwhile for her to open the restaurant? Explain.

b)Jean decides to open the restaurant, estimating that that business should be good once the development is completed and tenants begin to move into the nearby waterfront development. Considering this, Jean decided to decorate the restaurant. She estimates that she has spent significant time and money on permanent (i.e., not removable or returnable) fixtures and dcor in the restaurant. These costs are separate to those listed above. She has not yet purchased the food, equipment or other supplies for the restaurant.

Two months before her planned opening, however, a local political fight leads to an indefinite delay on completion of the waterfront development (i.e., there will be no new tenants nearby for the foreseeable future). Jean is trying to decide whether she should still open her restaurant or rent out her property. She can still open her restaurant, since her building is not in the new development; however, Jean is concerned that she will not recoup the costs of her time and money spent on dcor; business will likely be slower without the new tenants nearby. She estimates that first year revenues will now be $192K. Jean estimates that she will be able to rent the property out for only $2,000 per month now.

i)Using concepts from class only, should Jean open the restaurant? Give reasons for your answer.

ii) What effect does the time and money spent on the restaurant dcor play in your recommendation? Give reasons for your answer.