Question

An investor is considering buying a restaurant that has been in operation for a number of years. The restaurant has a highly regarded chef and many long-term kitchen and wait staff who work together smoothly. It has a reputation for dishes of consistently high quality and an appealing dining atmosphere. Which of the following should the investor consider when making a decision?
A. The investor should realize that the success of this restaurant is so heavily based on human resources that the business will likely be subject to inertia in the future.
B. The investor may find that the restaurant's financial statements undervalue the true value of its resources.
C. The investor should be aware that intangible assets are difficult to leverage into additional businesses.
D. The investor should search for a firm that has competitive advantages based on tangible resources.

Answer 1

Answer:

B.

Explanation:

The investor should consider that they may find that the restaurant's financial statements undervalue the true value of its resources. If this were to be the case then the investor would have made a lot of money since they would have paid face value for the restaurant when in actuality it was massively undervalued and is worth a lot more, meaning he would make a large profit on his investment from the beginning.