Jan finished culinary school and wants to start her own pastry business. She has a few options, and believes that a sensitivity analysis would help her to make the best business decision. She is considering three options, and is confident that there is a strong demand (.6) because there is only one other bakery in the town.
- Building in the newer area of town where there has been recent growth. Strong demand payoff $7 million, weak demand payoff $2 million.
- Renting an existing bakery location that was leasesed by a company that recently went out of business. Strong demand payoff $9 million, weak demand $4 Million.
- Renovativing in the historic district where there is a lot of tourism and foot traffic. Strong demand payoff $12 million, weak demand $7 million.
- Using three decisions, complete the equations and label each component of the equation. Use page 114 and 115 as a model, as well as the equation below to get you started. In addition, construct a decision table to go with the equations (see page 110). In five to seven sentences, explain what decision you believe Jan should make, and why.
Where = Decision 1: building in new side of town
Where = Decision 2: rent an existing bakery
Where = Decision 3: renovate in historic district