Reference no: EM131523587

Question: Vijay is feeling much better these days. A year ago he took a big risk and opened a cafeteria style restaurant next to a major university. He knew that college students were as interested in quantity as they were in quality when it came to eating. He figured that the rice, beans, and legumes of his native Indian would be an inexpensive way to fill the plates of his customers, and fill the plates he did. After a slow start, word got out that Rising Moon was the place to go for inexpensive, but decent food when you were hungry. Now, with his business running successfully, he is considering applying for a liquor license to serve beer and wine. Although the license is expensive, he know that the high margins on alcohol would cover his expenses. As a matter of fact, he expects profits to increase over 30% if he serves beer and wine. However, Vijay is concerned that serving alcohol could introduce many problems, such as rowdiness, possibly fighting, and a host of legal issues. What are the four decision elements of Vijay's decision? Are there any hedging strategies he can employ to avoid the downside risks?