Edward Hughes has just won the state lottery and has the following three payout options for after−tax prize money: 1. $164,000 per year at the end of each of the next six years 2. $312,000 (lump sum) now 3. $520,000 (lump sum) six years from now The annual discount rate is 9%. Compute the present value of the second option.
Edward Hughes has just won the state lottery and has the following three payout options for after−tax prize money: 1. $164,000 per year at the end of each of the next six years 2. $312,000 (lump sum) now 3. $520,000 (lump sum) six years from now The annual discount rate is 9%. Compute the present value of the second option.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Edward Hughes has just won the state lottery and has the following three payout options for
after−tax
prize money:1.
$164,000
per year at the end of each of the next six years2.
$312,000
(lump sum) now3.
$520,000
(lump sum) six years from nowThe annual discount rate is 9%. Compute the present value of the second option. (Round to nearest whole dollar.)
Present value of $1:
|
|
8%
|
9%
|
10%
|
|
1
|
0.926
|
0.917
|
0.909
|
|
2
|
0.857
|
0.842
|
0.826
|
|
3
|
0.794
|
0.772
|
0.751
|
|
4
|
0.735
|
0.708
|
0.683
|
|
5
|
0.681
|
0.650
|
0.621
|
|
6
|
0.630
|
0.596
|
0.564
|
|
7
|
0.583
|
0.547
|
0.513
|
$312,000
$104,000
$416,000
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