Managerial Decision Problem (Essay Sample)

MANAGERIAL DECISION PROBLEM
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The choice of the appropriate lease plan depends on different factors. These factors include the flexibility of the lease plan, the revenue generated per month, and the capability of the store making profit. Two possibilities will be considered. Possibility A is if everything is moving in the right direction. For possibility one, the store will realize revenue amounting to $ 17000. In possibility 2, the store will recognize half the revenue in lease A if the customers are limited to morning and evening commuters. Possibilities A and B have equal probability. It will be an operating lease, one that that does not convey rights to ownership.
Assuming that the required rate of return per year is 9 percent, the store expects to earn $381500. This is according to the following formulae.
((Return - Capital) / Capital) × 100% = Rate of Return (Easton, 2004, pp. 73--95).
Therefore, ((Return-350000) / 350000 × 100% = 9%. The return is $381500 per year. For Lease A, cost of the store is $9,000 per month operate including lease payments. For this reason, the total cost per year is $9,000 × 12, which is equal to $108000. If the store will function as expected and if everything is going in the right direction, it will make $17000 per month. Per year, the store will make $17000 multiplied by 12, which is $204000. If the sales are confined to evening ad morning commuters, the store will make half the money per year, which is $102000. According to the circulations, the store will make a profit in the first year if everything is going in the right direction. If the shop receives customers who are morning and evening commuters, it will operate at a lower rate that the lease cost per year. In both situations, the store will not meet the required rate of return per year.
For Lease B, the cost of the store is $10,000 (an additional $1,000 per month) per month operate including lease payments. For this reason, the total cost per year is $10,000 × 12, which is equal to $120000. If the activities of the store will be as expected and if everything is going in the right direction, it will make $17000 per month. Per year, the store will make $17000 multiplied by 12, which is $204000. If the customers are limited to evening and morning commuters, the store will make half the money per year, which is $102000. In lease B, the expenses are higher compared to lease A. Although the store can pull out of the lease, the chances, of, not reaching the target return rate, are high. The store is making an annual profit in a situation one but runs at a loss in case too.
132397573660000363791573660000389636064135000534035688975003067050-177800001619250-17780044767502107565Gains below cost0Gains below cost13811252107565Gains below cost0Gains below cost-2667002108200Gains above cost0Gains above cost43910251270000Situation B($102000)0Situation B($102000)28479751270000Situation A($204000)0Situation A($204000)13811251270000Situation B($102000)0Situation B($102000)-2000251270000Situation A($204000)0Situation A($204000)3209925222250Lease B $10000($1...