Use the Information Below to Answer the Following Question(s)

question 70

Multiple Choice

Use the information below to answer the following question(s) :
The owner of the Krusty Krab is considering selling his restaurant and retiring.An investor has offered to buy the Krusty Krab for $350,000 whenever the owner is ready for retirement.The owner is considering the following three alternatives:
1.Sell the restaurant now and retire.
2.Hire someone to manage the restaurant for the next year and retire.This will require the owner to spend $50,000 now,but will generate $100,000 in profit next year.In one year the owner will sell the restaurant for $350,000.
3.Scale back the restaurant's hours and ease into retirement over the next year.This will require the owner to spend $40,000 on expenses now,but will generate $75,000 in profit at the end of the year.In one year the owner will sell the restaurant for $350,000.
-If the interest rate is 7%,the alternative with the lowest NPV is:

• A)Alternative #1 with an NPV of approximately $350,000.
• B)Alternative #2 with an NPV of approximately $370,561.
• C)Alternative #3 with an NPV of approximately $357,196.
• D)Alternative #2 with an NPV of approximately $380,561.

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Definitions:

Opportunity Cost

The cost of forgoing the next best alternative when making a decision or choosing to undertake an action.

Monetary Costs

The financial expenses incurred in the production of a good or service, including raw materials, labor, and other expenditures that can be measured in monetary terms.

Lost Options

Alternatives forgone when a decision is made, often considered in opportunity cost analysis.

Computer Monitors

Display devices used by computers to visually output information such as text, images, and videos.