Question

Question 1 - A company could sell a building for $250,000 or lease it for $2,500 per month. What would need to be considered in determining if the lease option would be preferred?

Question 2 - Many fast-food restaurant chains, such as McDonald's, will occasionally discontinue restaurants in their system. What are some of the financial and non-financial considerations in deciding to eliminate a store?

Question 3 - A chemical company has a commodity-grade and premium-grade product. Why might the company elect to process the commodity-grade product further to the premium-grade product?

Answer 1

Question 1 - A company could sell a building for $250,000 or lease it for $2,500 per month. What would need to be considered in determining if the lease option would be preferred?

The differential income and costs of the lease option should be compared against selling the building.The differential revenue would be the lease revenue compared to the proceeds from sale. The differential expenses would be the costs associated with leasing the building, including maintenance,property tax, and insurance, compared to the expenses of selling, such as sales commissions. The opportunity cost of money should also be considered in the analysis.

Question 2 - Many fast-food restaurant chains, such as McDonald's, will occasionally discontinue restaurants in their system. What are some of the financial and non-financial considerations in deciding to eliminate a store?

Some of the financial considerations  in deciding to eliminate a storei are profitability of the store, including all the revenues and the variable and fixed costs associated with the store, since they would all be differential to the decision and  any other costs of closing the store and preparing the store for disposal such as egal costs, demolition costs, employee severance cost. some of the non financial considerations are future legislation, industry standards ,business reputation, protecting intellectual property against potential competition etc. The opportunity cost of the value of the equipment and land should be considered.

Question 3 - A chemical company has a commodity-grade and premium-grade product. Why might the company elect to process the commodity-grade product further to the premium-grade product?

If there is demand for the premium-grade product, the differential revenue may exceed the differential cost to process the product to premium grade.