Question

A vintner is deciding when to release a vintage of sauvignon blanc. If it is bottled and released now, the wine will be worth $2.4 million. If it is barrel aged for a further year, it will be worth 20% more, though there will be additional costs of $720,000 incurred at the end of the year. If the interest rate is 7%, what is the present value of 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 O A. He will earn $381,308 more if he releases the wine now. O B. He will earn $240,000 less if he releases the wine now. O C. He will earn $336,000 more if he releases the wine now. D. He will earn $2,400,000 less if he releases the wine now. rk/D Click to select your answer. ? Type here to search i

Answer 1

Revenue if sold now = 2,400,000

Revenue if sold after year = (2,400,000+20%) - 720,000 = 2,160,000

This discounted to presented value = 2,160,000/(1+0.07)

= 2,018,692

Difference = 2,018,692 - 2,400,000 = -384,308

So, he will earn 381,308 more if he realizes the wine now

.

Option A