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

question 66

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 discount rate is 15%,the alternative with the highest NPV is:

• A)#1 with an NPV of approximately $350,000.
• B)#2 with an NPV of approximately $341,300.
• C)#3 with an NPV of approximately $329,570.
• D)#2 with an NPV of approximately $400,000.
• E)None of the above

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Definitions:

Insider Trading

The trading of a public company's stock or other securities (such as bonds or stock options) by individuals with access to non-public, material information about the company.

Distributive Justice

The perceived fairness of outcomes distributed among members of a group, including resources, rewards, and responsibilities.

Business Relationship

The interaction, connection, or association between two or more businesses that arises from commercial transactions or mutual business interests.

Outcomes

The results or consequences of actions taken by an individual, group, or organization, often measured to assess effectiveness or success.