Autor: Kill009 • October 9, 2012 • 602 Words (3 Pages) • 1,585 Views
1) Without considering the partnership opportunity, what would be Sanjay's expected monthly salary at Gentle Lentil? How does this compare to his monthly salary at the consulting firm?
a. Sanjay's expected monthly income would follow the below distribution. Based on the Crystal Ball model, his expected monthly revenue after fixed and variable costs would be $10,830. Compared with the guaranteed consulting firm salary of $6,666.67 per month, his expected monthly salary is $4,163.33 higher by opening the Gentle Lentil. However, over 100,000 trials, the range of potential monthly revenue goes from ($22,474) to $53,717, so there's quite a bit of potential volatility. Using the mean of $10,803 and standard deviation of $8,685, the probability that Sanjay will make less than consulting (~$6,667) in any given month is 31.56%.
2) Without considering the partnership opportunity, try to compute the standard deviation of Sanjay's monthly salary at Gentle Lentil. What problems do you encounter?
a. The standard deviation of Sanjay's monthly salary depends on multiple variables. The expected number of meals, expected revenue per meal, and the variable labor cost will all have an impact on Sanjay's monthly salary. Since we are unable to determine the true level of independence between these variables, the standard deviation may be affected. Additionally, the distribution of his expected monthly revenue is not perfectly normally distributed, as illustrated below.
3) If you were Sanjay, what quantitative questions about the potential salary at Gentle Lentil (with and without the partnership opportunity) would you want to answer before deciding whether to launch the Gentle Lentil Restaurant or to accept the consulting position?
a. Prior to making a decision, since the salary for the Gentle Lentil is so variable month to month, it could be valuable to look at it on a various aspects as below
* Given the partnership opportunity, what is the probability of earning at least $3500?
* Given the partnership opportunity, what is the probability of earning at least $5,000?
* Given no partnership opportunity, what is the probability of earning less than $5,000?
* What is the maximum profit Sanjay would earn if he opened the restaurant versus the maximum profits if he accepted the consulting position?
* What is the probability of earning at least the monthly salary of the consulting firm, if Sanjay was to open the restaurant?
* What is the long term expected profits of the restaurant compared to the long term earnings of the consulting position?