Managerial Accounting (5th Edition)
5th Edition
ISBN: 9780134128528
Author: Karen W. Braun, Wendy M. Tietz
Publisher: PEARSON
expand_more
expand_more
format_list_bulleted
Concept explainers
Question
Chapter 12, Problem 12.25AE
To determine
The present value of each payout option.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Question:
Congratulations! You have won a state lottery. The state lottery offers you the following (after-
tax) payout options:
1. $14,000,000 after five years
2. $2,000,000 per year for five years
3. $13,000,000 after three years
Present value of the payout, Option #1 is $
Round your answer to the nearest dollar.
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?
You have been offered 5 options to choose from as a gift for being the best innovative student in anational competition . The options are as shown below and you can only select ONE:*• Option A: Receive Kshs.500,000 at the end of each of the next 8 years.• Option B: Receive a one-time payment of Kshs.10,000,000 at the end of 3 years fromtoday• Option C: Receive a perpetual amount of Sh. 300,000 annually.• Option D: Receive Kshs. 1,000,000 two years from today at the end of every year for 8years.• Option E : Receive Kshs 200,000 at the end of year 1, Kshs 250,000 at the end of year 2,Kshs.300,000 at the end of year 3 and Kshs. 500,000 at the end of year 4.
Required:Assuming that your required rate of return is 6%, which option is the most valuable?
Chapter 12 Solutions
Managerial Accounting (5th Edition)
Ch. 12 - Prob. 1QCCh. 12 - (Learning Objective 2) After identifying potential...Ch. 12 - Prob. 3QCCh. 12 - Prob. 4QCCh. 12 - Prob. 5QCCh. 12 - Prob. 6QCCh. 12 - Prob. 7QCCh. 12 - Prob. 8QCCh. 12 - Prob. 9QCCh. 12 - (Learning Objective 5) Which of the following...
Ch. 12 - Order the capital budgeting process (Learning...Ch. 12 - Prob. 12.2SECh. 12 - Prob. 12.3SECh. 12 - Prob. 12.4SECh. 12 - Prob. 12.5SECh. 12 - Prob. 12.6SECh. 12 - Prob. 12.7SECh. 12 - Prob. 12.8SECh. 12 - Prob. 12.9SECh. 12 - Prob. 12.10SECh. 12 - Prob. 12.11SECh. 12 - Prob. 12.12SECh. 12 - Prob. 12.13SECh. 12 - Prob. 12.14SECh. 12 - Prob. 12.15SECh. 12 - Identify ethical standards violated (Learning...Ch. 12 - Prob. 12.17AECh. 12 - Compute payback period and analyze changes...Ch. 12 - Prob. 12.19AECh. 12 - Prob. 12.20AECh. 12 - Prob. 12.21AECh. 12 - Prob. 12.22AECh. 12 - Calculate the payback and NPV for a sustainable...Ch. 12 - Prob. 12.24AECh. 12 - Prob. 12.25AECh. 12 - Prob. 12.26AECh. 12 - Prob. 12.27AECh. 12 - Prob. 12.28AECh. 12 - Prob. 12.29AECh. 12 - Prob. 12.30AECh. 12 - Prob. 12.31AECh. 12 - Prob. 12.32AECh. 12 - Prob. 12.33AECh. 12 - Prob. 12.34AECh. 12 - Prob. 12.35AECh. 12 - Prob. 12.36BECh. 12 - Prob. 12.37BECh. 12 - Prob. 12.38BECh. 12 - Prob. 12.39BECh. 12 - Prob. 12.40BECh. 12 - Prob. 12.41BECh. 12 - Prob. 12.42BECh. 12 - Prob. 12.43BECh. 12 - Prob. 12.44BECh. 12 - Prob. 12.45BECh. 12 - Prob. 12.46BECh. 12 - Prob. 12.47BECh. 12 - Prob. 12.48BECh. 12 - Prob. 12.49BECh. 12 - Prob. 12.50BECh. 12 - Prob. 12.51BECh. 12 - Prob. 12.52BECh. 12 - Prob. 12.53BECh. 12 - Prob. 12.54BECh. 12 - Prob. 12.55APCh. 12 - Prob. 12.56APCh. 12 - Prob. 12.57APCh. 12 - Prob. 12.58APCh. 12 - Prob. 12.59BPCh. 12 - Prob. 12.60BPCh. 12 - Evaluate an investment using all four methods...Ch. 12 - Prob. 12.62BPCh. 12 - Prob. 12.63SCCh. 12 - Discussion Questions 1. Describe the capital...Ch. 12 - Prob. 12.65ACTCh. 12 - Prob. 12.66ACTCh. 12 - Prob. 12.67ACT
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.Similar questions
- A financial planning service offers a college savings program. The plan calls for you to make six annual payments of $14,000 each, with the first payment occurring today, your child's 12th birthday. Beginning on your child's 18th birthday, the plan will provide $25,000 per year for four years What retum is this investment offering?arrow_forwardQuestion Help You want to endow a scholarship that will pay $9,000 per year forever, starting one year from now. If the school's endowment discount rate is 9%, what amount must you donate to endow the scholarship? The amount you must donate is $ (Round to the nearest cent.) Enter your in the answer box.arrow_forwardYou Answered Correct Answers You won the lottery. You could receive $100,000 a year for the next 10 years or a lump sum today. The lottery uses a 12 percent discount rate (compounded annually). What would be the lump sum amount you would receive today? 632,824.98 565,022.3 (with margin: 100)arrow_forward
- 1) How much must you deposit each year into your retirement account starting now and continuing through year 11 if you want to be able to withdraw $75,000 per year forever, beginning 27 years from now? Assume the account earns interest at 14% per year. 2) The State of Chiapas, Mexico, decided to fund a program for improving reading skills in elementary school students. The first cost is $400,000 now and an update amount of $130,000 every 7 years forever. Determine the perpetual equivalent annual cost at an interest rate of 9% per year. 3) ABC Beverage, LLC, purchases its 355-ml cans in large bulk from Wald-China Can Corporation. The finish on the anodized aluminum surface is produced by mechanical finishing technologies called brushing or bead blasting. Engineers at Wald are switching to more efficient, faster, and cheaper machines to supply ABC. Use the estimates and MARR = 8% per year to select between the two alternatives. Brush Alternative Bead Blasting Alternative P…arrow_forward• You won the lottery today and immediately deposit your funds into an investment account that earns 9% compounded monthly for 3 years until you finish school. You then retire and start to receive your BEGINNING of the month payments of $10,000 for 60 years (before the money runs out). How much did you win?? (Timeline is 63 years and interest is 9% compounded monthly for the entire 63 years as well).arrow_forwardNEEDS 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?arrow_forward
- You are applying for a scholarship currently valued at $6,500. If you are awarded it at the end of next year, how much will it be worth in today's dollars, assuming inflation of 2.5 percentarrow_forwardJane Bauer has won the lottery and has the following four options for receiving her winnings: Receive $100,000 at the beginning of the current year Receive $108,000 at the end of the year Receive $20,000 at the end of each year for eight years Receive $10,000 at the end of each year for 30 years Jane can invest her winnings at an interest rate of 8% compounded annually at a major bank. Use the appropriate present or future value table: FV of $1, PV of $1, FV of Annuity of $1 and PV of Annuity of $1 Calculate the Present value for each of the above options. Round all answers to the nearest dollar. Present Value Option 1 $fill in the blank 1 Option 2 $fill in the blank 2 Option 3 $fill in the blank 3 Option 4 $fill in the blank 4 Which of the payment options should Jane choose?arrow_forwardLottery Your dreams of becoming rich have just come true. You have won the State of Tranquility's Lottery. The State offers you two payment plans for the $1.000,000 advertised jackpot. You can take annual payments of $20,000 at the end of the year for the next 50 years or $166,090 today. a. If your investment rate over the next 50 years is 14%, which payoff will you choose? b. If your investment rate over the next 50 years is 10%, which payoff will you choose? c. At what investment rate will the annuity stream of $20.000 be the same as the lump-sum payment of $166.090? a. If your investment rate over the next 50 years is 14%, what is the present value of the $20,000 annual payments today? (Round to the nearest dollar.)arrow_forward
- A financial planning service offers a college savings program. The plan calls for you to make six annual payments of $14,000 each, with the first payment occurring today, your child's 12th birthday. Beginning on your child's 18th birthday, the plan will provide $25,000 per year for four years What retum is this investment offering? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g, 32.16.) Return 0% References eBook & Resources Worksheet Section: 4.3 Compounding Periods Difficulty: 3 Challenge Section: 4.4arrow_forwardA financial planning service offers a college savings program. The plan calls for you to make six annual payments of $14,000 each, with the first payment occurring today, your child's 12th birthday. Beginning on your child's 18th birthday, the plan will provide $25,000 per year for four years What retum is this investment offering? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g, 32.16.) Return 0%arrow_forwardConstruct the amortization schedule for a $8000 debt that is to be amortized in 6 equal quarterly payments at 2% interest per quarter on the unpaid balance. How much interest must be paid? After you are ready, choose the "Finish attempt" option, and then "Submit all and finish". After this, take a picture or scan your solution and upload it into the e-learning system. You should upload the solution in jpg or pdf format. Please, write legibly. If I can not read your solution, I can not give points either.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Excel Applications for Accounting PrinciplesAccountingISBN:9781111581565Author:Gaylord N. SmithPublisher:Cengage Learning
Excel Applications for Accounting Principles
Accounting
ISBN:9781111581565
Author:Gaylord N. Smith
Publisher:Cengage Learning