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This is not enough for Kelly to earn a salary superior to what she does now, but she may be able to improve the restaurant's business in order to make that happen. Doubling the market share -- by driving a good dinner service, for example, or breakfast -- would allow Kelly to have a pre-tax profit in excess of $58,000.
Possibility C. is interesting. Initially, there appears to be a profit of at least $20,000 per year ($44,384 with double market share), but this does not include rent because there is no site for this option yet. Also, this profit level does not include principle repayments on the loan. Additionally, this is a pre-tax number, so again Kelly would make more money in her current position. />
Financing
3. There is a significant amount of additional information that Kelly needs before making this decision. She needs clarity about what she wants to do with a restaurant, and should base her cost projections on that. For Option B, she needs to know how much work the current owner does there -- she will need to take over that work. Kelly also must consider that the franchise does not yet have site, so there are additional costs that have not been included yet. Kelly needs to have a better sense of how much work restaurant owners actually put in, because she seems to think this will be a part-time job. She is also nervous about interference from the franchise, yet it is their expertise that she is paying for, so it is recommended that she learn more about the franchise ownership business before making a decision about that option. Kelly will also need to boost her knowledge of the market, of the regulatory environment and a number of other operational areas before making this decision. It is not that she cannot do it, but she needs to know what she is getting into, and right now this does not seem to be the case.
Appendix a: Calculations
Possibility a
Year
0
1
2
3
4
5
Rent
30000
30000
30000
30000
30000
Royalty
Upgrades
60000
Revenue
268800
268800
268800
268800
268800
COGS
134400
134400
134400
134400
134400
Op Exp
94080
94080
94080
94080
94080
Pre-Tax
-60000
Possibility B
Year
0
1
2
3
4
5
Rent
12000
12000
12000
12000
12000
Royalty
0
0
0
0
0
Payment
25000
10000
10000
10000
Financing
Revenue
268800
268800
268800
268800
268800
COGS
134400
134400
134400
134400
134400
Op Exp
94080
94080
94080
94080
94080
Pre-Tax
-25000
17820
17820
17820
27820
27820
Possibility C
Year
0
1
2
3
4
5
Rent
0
0
0
0
0
Royalty
16128
16128
16128
16128
16128
Franchise
20000
0
0
0
0
0
Financing
Revenue
268800
268800
268800
268800
268800
COGS
134400
134400
134400
134400
134400
Op Exp
94080
94080
94080
94080
94080
Pre-Tax
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