CASE OUTLINE

Jim Foster is the owner of Selwyn Pub in North Carolina.Jim's family was the owner of the pub for over four decades. The distinguishing feature of the Selwyn Pub is the massive oak tree in front of the pub, its branches and leaves cascading over the side walk.The tree became the arbor for outdoordiningand pubservices, giving a natural gift of green shade and breeze through the hot summer months and cool sunshine in early Fall and late Spring.The outdoor area was approximately 50feet by 50 feet.Each table occupies 12 feet by 8feet, seating 22 tables.

Over the years, Jim noticed that the tree was not as abundant and despite repeatedly service from expert arborists (tree doctors), the tree was in failing health.The past expenses over these years totaled $5,000.The town decided that the tree wasdanger to property and people and decided on its imminent removal.

Foster was convinced that nothing would replace the tree to his business and to its patron.Clearly, each replacement would involve different costs and benefits to his business.These are some of the thoughts Foster considered.

A.Do nothing.This becomes the new baseline for all decisions because the competitive advantage offered by the shade of a beautiful tree is no more. Foster observes that theloss of shade can potentially reduce both indoor and outdoor revenue, compared to past experience.

B.Invest ina non-retractable awningcreating an outdoor space, giving additional protection in clear and rainy days.

C.Invest ina retractable awningto create outdoor space,

Foster estimated explicit costs as follows:

1)Do nothing

2)Costs of non-retractable awning:$50,000

3)Costs of retractable awning$100,000

1.What risks would the bank consider in evaluating the loan application?