A Vintner Is Deciding When to Release a Vintage of Sauvignon

question 107

Multiple Choice

A vintner is deciding when to release a vintage of sauvignon blanc.If it is bottled and released now,the wine will be worth $2.2 million.If it is barrel aged for a further year,it will be worth 20% more,though there will be additional costs of $500,000,realized at the end of the year.If the interest rate is 7%,what is the difference in the benefit the vintner will realize if he releases the wine after barrel aging it for one year or if he releases the wine now?

• A)He will earn $600,000 less if he releases the wine now.
• B)He will earn $200,000 more if he releases the wine now.
• C)He will earn $107,000 less if he releases the wine now.
• D)He will earn $80,000 more if he releases the wine now.
• E)He will earn $500,000 less if he releases the wine now.

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Definitions:

Free Cash Flow

The amount of cash a company generates after accounting for cash outflows to support operations and maintain its capital assets.

Interest Expense

The cost incurred by an entity for borrowing funds, represented as a charge against its earnings or net income.

Net Debt

The amount of debt remaining after deducting cash and cash equivalents from total debt obligations.

Equity Holders

Individuals or entities that own equity shares in a company, thus having an ownership interest.