Financial & Managerial Accounting
13th Edition
ISBN: 9781285866307
Author: Carl Warren, James M. Reeve, Jonathan Duchac
Publisher: Cengage Learning
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Chapter 12, Problem 12.3CP
To determine
Present Value: The value of today’s amount expected to be paid or received in the future at a compound interest rate is called as present value.
To determine: the payout option that Mr. A would select.
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Students have asked these similar questions
Lottery 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.)
Jane 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?
Nn.120.
Subject ;- Account
Chapter 12 Solutions
Financial & Managerial Accounting
Ch. 12 - Describe the two distinct obligations incurred by...Ch. 12 - Explain the meaning of each of the following terms...Ch. 12 - Prob. 3DQCh. 12 - A corporation issues 26,000,000 of 9% bonds to...Ch. 12 - Prob. 5DQCh. 12 - The following data relate to a 2,000,000, 8% bond...Ch. 12 - Prob. 7DQCh. 12 - Prob. 8DQCh. 12 - Fleeson Company needs additional funds to purchase...Ch. 12 - Prob. 10DQ
Ch. 12 - Prob. 12.1APECh. 12 - Prob. 12.1BPECh. 12 - Issuing bonds at face amount On January 1, the...Ch. 12 - Prob. 12.2BPECh. 12 - Issuing bonds at a discount On the first day of...Ch. 12 - Prob. 12.3BPECh. 12 - Prob. 12.4APECh. 12 - Prob. 12.4BPECh. 12 - Prob. 12.5APECh. 12 - Prob. 12.5BPECh. 12 - Prob. 12.6APECh. 12 - Prob. 12.6BPECh. 12 - Redemption of bonds payable A 1,500,000 bond Issue...Ch. 12 - Prob. 12.7BPECh. 12 - Prob. 12.8APECh. 12 - Prob. 12.8BPECh. 12 - Prob. 12.9APECh. 12 - Prob. 12.9BPECh. 12 - Prob. 12.1EXCh. 12 - Prob. 12.2EXCh. 12 - Prob. 12.3EXCh. 12 - Prob. 12.4EXCh. 12 - Prob. 12.5EXCh. 12 - Prob. 12.6EXCh. 12 - Prob. 12.7EXCh. 12 - Entries for issuing and calling bonds; loss Adele...Ch. 12 - Entries for issuing and calling bonds; gain Emil...Ch. 12 - Entries for installment note transactions On the...Ch. 12 - Prob. 12.11EXCh. 12 - Entries for installment note transactions On...Ch. 12 - Prob. 12.13EXCh. 12 - Prob. 12.14EXCh. 12 - Prob. 12.15EXCh. 12 - Prob. 12.16EXCh. 12 - Present value of amounts due Tommy John is going...Ch. 12 - Present value of an annuity Determine the present...Ch. 12 - Prob. 12.19EXCh. 12 - Prob. 12.20EXCh. 12 - Prob. 12.21EXCh. 12 - Prob. 12.22EXCh. 12 - Amortize discount by interest method On the first...Ch. 12 - Prob. 12.24EXCh. 12 - Prob. 12.25EXCh. 12 - Prob. 12.26EXCh. 12 - Prob. 12.1APRCh. 12 - Prob. 12.2APRCh. 12 - Bond premium, entries for bonds payable...Ch. 12 - Prob. 12.4APRCh. 12 - Prob. 12.5APRCh. 12 - Prob. 12.6APRCh. 12 - Prob. 12.1BPRCh. 12 - Prob. 12.2BPRCh. 12 - Prob. 12.3BPRCh. 12 - Prob. 12.4BPRCh. 12 - Prob. 12.5BPRCh. 12 - Prob. 12.6BPRCh. 12 - Prob. 12.1CPCh. 12 - Prob. 12.2CPCh. 12 - Prob. 12.3CPCh. 12 - Preferred stock vs. bonds Xentec Inc. has decided...Ch. 12 - Prob. 12.5CPCh. 12 - Prob. 12.6CP
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- Question 22 Congratulations, you've just won the $3,800,000 state lottery! The lottery commission offers you the choice of $173,000 per year for 25 years or a one-time, lump-sum payment of $1,862,000 if your intensi of annual cash flow or lump-sum) for retirement in an account that earns 15.00% annually, which payment option should you choose? O Take the lump-sum payment now because the present value of the annuity is less than the lump-sum payment. O Take the lump-sum payment now because the present value of the annuity is greater than the lump-sum payment. O You are indifferent between the lump-sum or annuity payment because the present value of the annuity is less than the lump-sum payment. O Choose the annual payment because the present value of the annuity is less than the lump-sum payment. O Choose the annual payment because the present value of the annuity is greater than the lump-sum payment.arrow_forward24. Comparing Lottery Payouts A lottery winner is given two options: Option I: Receive a $20 million lump-sum payment. Option II: Receive 25 equal annual payments totaling $60 million, with the first payment occurring immediately. If money can earn 6% interest compounded annually dur- ing that long period, which option is better? Hint: With each option, calculate the amount of money earned at the end of 24 years if all of the funds are to be deposited into a savings account as soon as they are received.arrow_forwardA1arrow_forward
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