The Crown Jewel Hotel is undergoing major renovations. After 20 years of operations the hotel owner of this 4-star hotel has decided that it is time to revamp the hotel. Rooms revenue has never been a problematic area but in the past decade the existing restaurant trade slowed down to a point that for the last 5 years the hotel restaurant has been making an annual loss in the range of $100,000.

The restaurant was situated in the west side of the ground floor. This meant that customers had to go past the reception and lobby areas to reach the hotel. There is an opportunity to relocate the restaurant area in order to have a high street entrance but this would add an extra $250,000 renovation cost to the already increasing renovation bill and the hotel owner is reluctant to invest such an amount of money considering the restaurant performance in the past few years.

The current Food and Beverage Manager teamed with the hotel Chef to come up with an exciting new menu and an international brand for the restaurant. They are keen to see the restaurant have its own high street entrance. Their 5-year business plan shows a profit of approximately $100,000 per year. At the same time the hotel owner has an offer from a local celebrity chef who wishes to lease the new restaurant if the restaurant has its own high street entrance. He is willing to offer a rent of $80,000 per year for a 10-year short lease. The celebrity chef's previous restaurants were all about fish and the hotel owner feels that his hotel guests need to have a restaurant that offers an international cuisine that does not solely focus on fish.

a) Give specific recommendations as to whether or not the hotel owner should invest the additional $250k for a high street restaurant entrance. (12 marks)

b) Should the hotel owner outsource the restaurant or keep the business in house? What are the reasons for your answer? (13 marks)