What is the present value of the net profit

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Question - A vintner is deciding when to release a vintage wine. If it is bottled and sold now, the immediate revenue will be $2.5 million. If it is barrel aged for a further year, the revenue in one year will be 30% more, though there will be additional costs of $400,000, occurring in one year. Assume an interest rate of 5%.

a. What is the present value of the net profit if the vintner sells the wine after barrel aging it for a further year? Please show your work (e.g., the formulas, Excel functions, and the numerical inputs).

b. Should the vintner sell the wine now or a year later? Briefly Explain.

Reference no: EM133044199

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