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

question 37

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 #2 is closest to:

• A)$350,000.
• B)$357,196.
• C)$370,561.
• D)$401,121.

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Definitions:

Borrowed

Borrowed refers to funds that have been taken on loan from external sources, which are expected to be paid back with interest over time.

Daily Compounding

The process where the interest on an investment is calculated daily and added to the principal, so that each subsequent calculation of interest includes interest previously earned.

Bank Account

A financial account maintained by a banking institution in which the financial transactions between a customer and the bank are recorded.

Withdraw

The act of removing funds from an account, decreasing investment in a particular asset, or retracting participation from an agreement or membership.