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

question 75

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.
-Which of the following statements regarding Net Present Value (NPV) is INCORRECT?

• A) The NPV represents the value of the project in terms of cash today.
• B) Good projects will have a positive NPV.
• C) The NPV of a project is the difference between the present value of its benefits and the present value of its costs.
• D) When faced with a set of alternatives, choose the one with the lowest NPV in order to minimize the preset value of costs.

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Definitions:

Vindicate

To clear from blame or suspicion; to justify, prove, or reinforce the correctness of someone's actions or a particular stance.

Party and Party Basis

A legal term referring to the assessment of legal costs that are to be paid by one party to another in a lawsuit.

Contribution Margin

The amount by which sales revenue exceeds variable costs, contributing to covering fixed costs and generating profit.

Marginal Trend

A minor change or adjustment in a pattern or sequence over time, often indicating a slight shift in behavior or performance.