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:

Pension Plan

A retirement plan that requires an employer to make contributions into a pool of funds set aside for a worker's future benefit. The fund is invested on the employee's behalf, and the earnings on the investments generate income to the worker upon retirement.

Post Retirement

The phase of life after an individual has ended their professional career, often focusing on leisure, personal interests, and potentially part-time work.

Social Security Benefits

Social Security Benefits are payments made to qualified retirees and disabled people, and to their spouses, children, and survivors.

Withholdings

The portion of an employee's earnings withheld by the employer for the purpose of paying taxes or other deductions.