A Vintner Is Deciding When to Release a Vintage of Sauvignon

question 42

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 15% more, though there will be additional costs of $528,000 incurred 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 $1,980,000 less if he releases the wine now.
• B) He will earn $328,972 more if he releases the wine now.
• C) He will earn $328,972 less if he releases the wine now.
• D) He will earn $356,400 more if he releases the wine now.

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Definitions:

Level Of Investment

The amount of spending by businesses on capital goods, such as factories and machinery, which can influence economic growth.

Keynes

Refers to John Maynard Keynes, an economist famous for his ideas that in times of low demand, public sector investments are critical to economic stability and growth.

Macroeconomic Policies

Strategies and initiatives implemented by a government or monetary authority to control and improve the overall performance of the economy, including monetary, fiscal, and trade policies.

Federal Government

The national government of a federation, which holds the authority to govern issues that affect the entire country, distinct from state or local governments.