Reference no: EM133123806
The owner of the Rusty Trombone is considering selling his restaurant and retiring. An investor has offered to buy the Rusty Trombone 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.
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.
4. If the interest rate is 7%, the NPV of alternative #1 is closest to:
A) $350,000
B) $357,000
C) $375,500
D) $400,000
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