Many fast-food restaurant chains, such as McDonald’s will occasionally discontinue restaurants in their system. What are some financial consideration in deciding to eliminate a store?

Some of the financial considerations include the profitability of the store, including all the revenues, variable and fixed costs associated with the store, since they would all be differential to the decision. In addition, any costs of closing the store and preparing the store for disposal would need to be considered (legal costs, demolition costs, employee severance costs). Lastly, the opportunity cost of the value of the equipment and land (either in cash or rental income) should be considered. For example, if the opportunity value of the assets were $500 per month, then the store would need to have a profitability exceeding this amount to remain an attractive alternative.