A vintner is deciding when to release a vintage of Sauvignon Blanc. If it is bottled and released now, the wine will be worth $2.2 million. If it is barrel aged for a further year, it will be worth 15% more, though there will be additional costs of $528,000 incurred at the end of the year. If the interest rate is 7%, what is 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) He will earn $1,980,000 less if he releases the wine now.
B) He will earn $328,972 more if he releases the wine now.
C) He will earn $328,972 less if he releases the wine now.
D) He will earn $356,400 more if he releases the wine now.

Question

Quizplus · Accepted Answer

B) $2,200,000 × 0.15 = $330,000;
Cash to be received after the end of the year: $2,200,000 + $330,000 - $528,000 = $2,002,000
$2,002,000 / 1.07 = $1,871,028.04
$2,200,000 - $1,871,028 = $328,972

A Vintner Is Deciding When to Release a Vintage of Sauvignon