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.