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
Related questions
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
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education