REMODELING DECISION
Ferinni Company operates a travel agency out of a historic building in Smalltown. Ferinni's CEO believes that the building needs to be remodeled in order to reach a wider customer base. The CEO proposes building a new entry that would be adjacent to Main Street in order to attract more foot traffic. The current entry faces a parking deck at the rear of the building and is easily overlooked by customers. The new entry will require the rearrangement of several offices inside the building. Because of competition from Internet travel sites, Ferinni will not be able to raise rates for its travel service after the remodeling is made.
Required:
1. Identify the factors that Ferinni should consider when evaluating whether to remodel the building.
2. Since the revenue rate cannot be increased, can the cost of the remodeling be capitalized? Why or why not?