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

question 89

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 NPV of alternative #1 is closest to:

• A)$350,000.
• B)$357,000.
• C)$375,500.
• D)$400,000.

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Definitions:

Cash Payment

A transaction that involves the immediate transfer of cash from the buyer to the seller for the purchase of goods or services.

Liabilities

Financial obligations or debts that a company owes to others, which must be paid back in the future.

Debts Owed

Amounts of money that are required to be repaid by an individual or organization to creditors.

Drawing Account

A specific account used to record amounts withdrawn by the owner(s) of a business for personal use.