Isabella is considering three mutually exclusive options for the additional space she just added to her specialty women's store. The cost of the expansion was $127,000. She can use this additional space to add a fabric and quilting section, add an exclusive gifts department, or expand into imported decorator items for the home. She estimates the present value of these options at $114,000 for fabric and quilting, $163,000 for exclusive gifts, and $138,000 for decorator items. Which option(s), if any, should Isabella accept?

Question

Quizplus · Accepted Answer

The best option for Isabella is to accept the exclusive gifts department, as it has the highest present value of $163,000. Adding the fabric and quilting section has a lower present value than the cost of the expansion, so it would not be a profitable option. Although expanding into imported decorator items has a positive present value, it is not as profitable as the exclusive gifts department. Therefore, Isabella should choose to add the exclusive gifts department to her store.

Isabella Is Considering Three Mutually Exclusive Options for the Additional