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The Hard Decision to Sell a Bar After Investing in It

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A local restaurant owner who was running a profitable business more many years recently purchased a 3-way liquor license. This gives him the right to sell beer, wine and spirits. The cost was about $75000, since only 30 such licenses are issued by the state. The license is transferable, but only $65000 is refundable if the owner chooses not to use it. After using it for about one year, the restaurant owner realized he was losing dinner customers and his profit profitable restaurant was turning into a noisy unprofitable bar. Subsequently, he spent about $6000 on advertising, offering to sell the license for $70000. Finally he received an offer for $66000. What is your opinion of the owner's decisions? Would you recommend he accept the $66000 offer?

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Solution Preview

All the costs given in the question are sunk costs - advertising costs, initial purchase cost of the license and the losses that have already incurred. Thus they should not factor ...

Solution Summary

The solution analyses this owner's decision, pulling out three options and reasoning out which is the most profitable one. 130 words.