Question 3 Mr. Wong rents a property to operate Queen Restaurant. The rental agreement is about time for annual renewal and he is currently in negotiation with the landlord. In next year, the landlord offers Mr. Wong two options. He can choose to pay either a fixed lease with a monthly rent of $60,000 or a variable lease with monthly rent to be paid at 15% of the restaurant's revenue. The restaurant owner expects that the annual revenue would be $4,500,000 for the coming year. To expand his business, Mr. Wong also considers expanding his business by purchasing one of the following two similar retail shops, namely, Ko Shop and Lo Shop. He has asked for your advice on which one of these two shops is the better investment. Current revenue of each shop is $500,000 per year. Ko Shop has annual variable costs of 60% of revenue and fixed costs of $80,000; Lo Shop has annual variable costs of 70% of revenue and fixed costs of $30,000. Mr. Wong think he is s that, ifhe purchases Ko Shop, he could save $20,000 a year on interest expense. Alternatively, if he purchases Lo Shop, he could improve staff scheduling so that the wage savings will reduce its total variable costs to 65%. In either case, he thinks that the revenue can be increased by 15% a year. (a) For the proposed new lease for the restaurant, answer the following questions: (0) Calculate the 'indifferent revenue level of the restaurant for the coming year. (2 marks) (ii) Explain, with reasons, which lease option that the restaurant owner should take. (3 marks) (b) Prepare a comparative statement to show the existing cost structures and net incomes of both retail shops. (5 marks) (c) Prepare a comparative statement to show the resultant cost structures and net incomes of both retail shops after the purchase. (5 marks) (d) Advise Mr. Wong which retail shop he should buy and the caution he should take. Give an example to illustrate