2C2A JACK BLAZE WANTS TO RENT STORE SPACE IN A NEW SHOPPING MALL FOR...

222.

CSO: 2C2a

LOS: 2C2a

Jack Blaze wants to rent store space in a new shopping mall for the three month holiday

shopping season. Blaze believes he has a new product available which has the potential

for good sales. The product can be obtained on consignment at the cost of $20 per unit

and he expects to sell the item for $100 per unit. Due to other business ventures, Blaze’s

risk tolerance is low. He recognizes that, as the product is entirely new, there is an

element of risk. The mall management has offered Blaze three rental options: (1) a fixed

fee of $8,000 per month, (2) a fixed fee of $3,990 per month plus 10% of Blaze’s

revenue, or (3) 30% of Blaze’s revenues. Which one of the following actions would you

recommend to Jack Blaze?

a.

Choose the first option no matter what Blaze expects the revenues to be.

b.

Choose the second option no matter what Blaze expects the revenues to be.

c.

Choose the second option only if Blaze expects revenues to exceed $5,700.

d.

Choose the third option no matter what Blaze expects the revenues to be.