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. I 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 interest rate is 7%, calculate the NPV of all three alternatives. Based on your calculation, which of the three alternatives is the best choice?
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. I 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 interest rate is 7%, calculate the NPV of all three alternatives. Based on your calculation, which of the three alternatives is the best choice?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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