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.

---

Definitions:

Machine Sales

Transactions involving the selling of machinery, which can be a significant source of revenue and profit for manufacturing and equipment companies.

Modified Cash Basis

An accounting method that combines elements of both cash and accrual accounting techniques.

Warranty Expense

Costs recognized by a company in accordance with its policy to repair or replace defective products during a warranty period.

Matching Concept

The Matching Concept in accounting states that expenses should be matched with the revenues that they helped to generate, in the same reporting period.