3. Moe's tavern has suffered declining sales for several years, so he is considering two proposals to try and reinvigorate the business and increase his future profits: Moe has chosen to use a discount rate of 10%. Option 1: Convert his bar into a family restaurant and rebrand as "Uncle Moe's Family Feedbag". Moe anticipates spending $60,000 on renovations and $8,000 on an initial advertising blitz during the first year. He expects that these changes will increase his operating profits by $15,000 in the first year and yield an additional $10,000 net of ongoing advertising expenditures each year (on average) for the next 9 years. Assume that the impacts to profitability beyond year 10 are negligible. The timeline below illustrates the timing for all of the expected impacts from this proposal. $10,000 profit net of continued advertising expenses continues until year 10 1. Year 0 Year 1 Year 2 Year 3 Year 4 Year 10 $53,000 $60,000 renovation cost + $8,000 initial advertising cost - $15,000 additional operating profit Option 2: Develop a new cocktail to increase interest in his bar. Moe expects that he would spend $500 upfront on R&D to create the new cocktail and then $8,000 on an initial advertising blitz during the first year to generate interest in the new cocktail. He expects that operating profits would rise by $7,000 in the first year of sales, but only by $3,500 the following year. The impacts to profitability beyond the second year are negligible. The timeline below illustrates all of the expected impacts from this proposal. $3,500 profit net of continued advertising expenses 1 Year Year 1 Year Year 3 Year 4 $500 R&D Costs $1000 - $8,000 initial advertising cost-$7,000 first year additional operating profit A. Calculate the NPV of Option 1. [1 mark-show your work] B. Calculate the NPV of Option 2. [1 mark-show your work) C. Calculate the equivalent annual net benefits of Option 1. [1 mark-show your work) D. Calculate the equivalent annual net benefits of Option 2. [1 mark-show your work]