Reference no: EM132585600

Imagine that you are running a small restaurant. You have a stable customer base and reliable employees. The business has been running quite well, and is profitable enough to continue as is. Your customers have recently been telling you about a new dish called a donair. This is a very popular dish in the Maritimes, and your customers are hoping that you will add it to the menu. Your market research suggests that if you add this dish, you can expect additional customers to come, as there is no other source nearby.

In order to cook donair, you need a vertical rotisserie to spin the pre-cooked meat. There does not appear to be enough room in the kitchen to accommodate this machine. Something would have to be taken out to make room in the kitchen, or the machine would have to be located in the very small bar space at the back of the restaurant, which would be visible to the customers.

You have been thinking about expanding the building anyway, as your hope is that the business will continue to expand to use additional seating from the expansion. The cost of the expansion is $125,000 for your building, and would allow you to expand your seating by about 30%. The payback on the expansion is about 2 years, but it would require closing the restaurant for 42 days to complete the renovations. There is always a risk that some of the customers will develop new habits in that time and not return.

Please answer the following questions in the space below:

Question 1. Does this expansion make sense from a business point of view?

Question 2. Is there a risk in this expansion? Can it be quantified?

Question 3. Can you think of a lower cost solution for adding donairs to the menu?

Question 4. Would it make sense to relocate the business?