The owner of ABC is considering selling his coffee shop and retiring. the investor offered to buy the coffee shop for $120,000 whenever the owner is ready. consider the following options.

1 sell the coffee shop and retire.

2. hire someone to manage the coffee shop for the next 1 year and retire. this will require spending $50,000 now but will generate an operating cash inflow of 100000 at the end of year 1 (starting from today ) the owner will sell the shop.

3. scale back coffee shops hours and ease into retirement over the next year.(year 1)this requires the owner to spend $40,000 on expenses now but will generate an operating cash inflow of $ 89,000 at the end of the year. in 1 year the owner will sell the shop.

If the discount rate is 10% then which option generates the higher value for the current owner?

Answer rating: 100% (QA)

The first option would generate a higher value for the current owner By selling the coffee shop and ... View the full answer