Question

Identify a decision from your personal experience that fits under one of the categories of differential analysis presented in the chapter (make or buy, sell or process further, accept or reject additional business, continue or discontinue). Describe the alternative courses of action and the information gathered that was relevant to your decision.

Answer 1

My brother and I decided to start a restaurant for selling salads and juices. The business boomed and we were offered a partnership by an investor. He offered us $500000 for a 50% stake in the business. In this case, the decision we had to make was whether to accept the additonal business or not.

The factors relevant to us were the revenue and profit we would be giving up for $500000. In this case, the time value of money was a relevant factor as the $500000 would be received immediately. Further, the credibility of the investor was also a relevant factor. Finally, we did not accept the offer as the business was growing and we would benefit more by keeping 100% stake in the busiess.