The owner of a restaurant approaches you and offers you the following deal: You would manage his restaurant for two years while he goes back to his country to do his compulsory military service. He shows you all his records and you see that the restaurant has sales revenue of $100,000 spread more or less evenly over each year and operating costs of $80,000 similarly spread over each year. You expect the revenue and cost situations to remain stable for each of the next two years. The restaurant owner wants to sell you this opportunity on the following basis: You pay $30,000 initially to the owner but keep all the profits you make over the two years. You know that you could, alternatively, invest your $30,000 in corporate bonds for a 20 percent rate of return, and you consider that alternative no more or less risky than the restaurant venture.

What is the present value of the opportunity to invest in the restaurant venture?

Which alternative should you choose, presuming these are the best opportunities available?

Are there any other issues involved?