After hearing a knock at your front door, you are surprised to see the Prize Patrol from your state's online lottery agency. Upon openingyour door, you learn you have won the lottery of $12.5 million. You discover that you have three options: (1) you can receive $1.25million per year for the next 10 years, (2) you can have $10 million today, or (3) you can have $4 million today and receive $1 million foreach of the next eight years. Your lawyer tells you that it is reasonable to expect to earn an annual return of 10 percent on investments.Required:1. What is the present value of the above options? (FV of $1, PV of $1, FVA of $1, and PVA of $1)Note: Use appropriate factor(s) from the tables provided.2. Which option do you prefer?Complete this question by entering your answers in the tabs below.Required 1Required 2Required 2above options?What is the presentNote: Enter your answers in whole dollar not in millions (i.e., 1,000,000 not 1.0), rounded to nearest whole dollar.Present ValueOption 1$7,681,000Option 2$10,000,000Option 3$9,368,000< Required 1Required 2 >

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Answered: After hearing a knock at your front…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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You have just won the Multi-State Lottery. You have the option of receiving a check for $35,000,000 every year at the end of the next 22 years. The lottery commission also allows you the option of receiving a one-time payment of $387,143,417 when you turn in the winning ticket. What is the approximate interest rate that the lottery commission is using to determine the one-time payment? (Use spreadsheet software or a financial calculator to calculate your answer. Do not round any intermediary calculations, and round your final answer to the nearest percent, X%.) Group of answer choices 7% 6% 8% 5%
Congratulations! You have just won a small lottery. Lottery officials give you three alternatives for receiving your winnings: a)$8000 now b)$1000 per year for 12 years c)$15000 in 10 years If you can earn 6.5% on your money, which alternative should you choose?
Alex Kelton recently won the jackpot in the Colorado lottery while he was visiting his parents. When he arrived at the lottery office to collect his winnings, he was offered the following three payout options: Receive $100,000,000 in cash today. Receive $25,000,000 today and $9,000,000 per year for eight years, with the first payment being received one year from today. Receive $15,000,000 per year for 10 years, with the first payment being received one year from today. Assuming that the effective rate of interest is 7%, which payout option should Alex select? Use the present value tables in Appendix A. Explain your answer and provide any necessary supporting calculations.
Alex Kelton recently won the jackpot in the Colorado lottery while he was visiting his parents. When he arrived at the lottery office to collect his winnings, he was offered the following three payout options:a. Receive $100,000,000 in cash today.b. Receive $25,000,000 today and $9,000,000 per year for eight years, with the first payment being received one year from today.c. Receive $15,000,000 per year for 10 years, with the first payment being received one year from today.Assuming that the effective rate of interest is 7%, which payout option should Alex select? Use the present value tables in Appendix A. Explain your answer and provide any necessary supporting calculations.
Alex Kelton recently won the jackpot in the Colorado lottery while he was visiting his parents. When he arrived at the lottery office to collect his winnings, he was offered the following three payout options: Receive $100,000,000 in cash today. Receive $25,000,000 today and $9,000,000 per year for eight years, with the first payment being received one year from today. Receive $15,000,000 per year for 10 years, with the first payment being received one year from today. Assuming that the effective rate of interest is 7%, which payout option should Alex select?
NEEDS TO BE DONE ON EXCEL You have just been notified that you have won the local Bucks for Life lottery. The lottery rules state that you have the option of receiving $25,000 annually for the rest of your life beginning immediately or a single lump sum today. You are not sure which option to take but to begin with you want to be assured that the lottery has enough money set aside to make the annual payments if you choose that option. Your accountant emails you to let you know that “it appears that the lottery has $200,000 in a separate bank account to cover your annual payment.” Assuming an interest rate of 12%, is this enough cash to cover the annual payments of $25,000 over your lifetime?
Congratulations! You have just won the lottery! However, the lottery bureau has just informed you that you can take your winnings in one of two ways. You can Select to receive a payment of $1,000,000 now or a payment of $1,750,000 in five years. Assume you can earn 5% on funds that you invest today. How much money would you have in five years if you take the immediate $1,000,000 payment and invest it? What does this tell you about the wisdom of selecting the immediate payment versus the future payment? Using the same 5% interest rate, what is the present value of the $1,750,000 that you could receive in five years? What does this calculation tell you about which lottery payout option you should choose? What do your results suggest as a general rule for approaching such problems? (Make your choices based purely on the time value of money.
The top prize for the state lottery is $105,000,000. You have decided it is time for you to take a chance and purchase a ticket. Before you purchase the ticket, you must decide whether to choose the cash option or the annual payment option. If you choose the annual payment option and win, you will receive $105,000,000 in 20 equal payments of $5,250,000—one payment today and one payment at the end of each of the next 19 years. If you choose the cash payment, you will receive a one-time lump sum payment of $63,830,111.58. You can invest the proceeds and earn 7%. At what interest rate would you be indifferent between the cash and annual payment options? (Round factor values to 3 decimal places, e.g. 1.521 and final answer to 0 decimal places, e.g. 15%.)Click here to view the PV Table. Interest rate %
The top prize for the state lottery is $114,100,000. You have decided it is time for you to take a chance and purchase a ticket. Before you purchase the ticket, you must decide whether to choose the cash option or the annual payment option. If you choose the annual payment option and win, you will receive $114,100,000 in 16 equal payments of $7,131,250-one payment today and one payment at the end of each of the next 15 years. If you choose the cash payment, you will receive a one-time lump sum payment of $68,171,032.39. If you can invest the proceeds and earn 9 percent, which you would choose along with the present value of the annuity? (Round factor values to 4 decimal places, e.g. 1.5213 and final answer to 2 decimal places, e.g. 15.25.) Lump sum payment V
You just won a lottery—CONGRATULATIONS! Your parents have always told you to plan for the future, so since you already have a well-paying job you decide to invest rather than spend your lottery winnings. The payment schedule from the lottery commission is $100,000 after taxes at the end of year one and 19 more payments of exactly $100,000 after taxes in equal annual end-of-the-year deposits (i.e., 20 deposits of $100,000 each, the first deposit is one year from today) into your account paying 7% compounded annually. How much money will be in your account after the last deposit is made?
The top prize for the state lottery is $115,700,000. You have decided it is time for you to take a chance and purchase a ticket. Before you purchase the ticket, you must decide whether to choose the cash option or the annual payment option. If you choose the annual payment option and win, you will receive $115,700,000 in 25 equal payments of $4,628,000—one payment today and one payment at the end of each of the next 24 years. If you choose the cash payment, you will receive a one-time lump sum payment of $53,355,093.34. If you can invest the proceeds and earn 9 percent, which option should you choose? (Round factor values to 3 decimal places, e.g. 1.521.) Lump sum paymentAnnual payment
The top prize for the state lottery is $105,704,000. You have decided it is time for you to take a chance and purchase a ticket. Before you purchase the ticket, you must decide whether to choose the cash option or the annual payment option. If you choose the annual payment option and win, you will receive $105,704,000 in 25 equal payments of $4,228,160—one payment today and one payment at the end of each of the next 24 years. If you choose the cash payment, you will receive a one-time lump sum payment of $57,293,079.68. At what interest rate would you be indifferent between the cash and annual payment options? (Round answer to 0 decimal places, e.g. 15%.) Interest rate %

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