Alex Meir recently won a lottery and has the option of receiving one of the following three prizes: (1) $64,000 cash immediately, (2) $20,000 cash immediately and a six-period annuity of $8,000 beginning one year from today, or (3) a six-period annuity of $13,000 beginning one year from today. Assuming an interest rate of 6%, which option should Alex choose?

Alex Meir recently won a lottery and has the option of receiving one of the following three prizes: (1) $64,000 cash immediately, (2) $20,000 cash immediately and a six-period annuity of $8,000 beginning one year from today, or (3) a six-period annuity of $13,000 beginning one year from today. Assuming an interest rate of 6%, which option should Alex choose?

Financial Accounting: The Impact on Decision Makers

10th Edition

ISBN:9781305654174

Author:Gary A. Porter, Curtis L. Norton

Publisher:Gary A. Porter, Curtis L. Norton

Chapter9: Current Liabilities, Contingencies, And The Time Value Of Money

Section: Chapter Questions

Problem 9.20MCE

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Alex Meir recently won a lottery and has the option of receiving one of the following three prizes: (1) $64,000 cash immediately, (2) $20,000 cash immediately and a six-period annuity of $8,000 beginning one year from today, or (3) a six -period annuity of $13,000 beginning one year from today. (FV of $1, PV of $1, FVA of $1, FVAD of $1 and PVAD of $1) Required 1. Assuming an interest rate of 6%, determine the present value for the above options. Which option should Alex choose? Annuity PV Annuity Immediate PV Option Payment Cash Option 1 ____________ _________ + __________ = $__________0 Option 2 ____________ _________ + __________ = $ 0 Option 3 ____________ __________ + ___________ =…
Quokka recently won the lottery and has the opportunity to receive $200,000 per year at the end of the year for the next 20 years. Assuming an annual interest rate of 5% is appropriate, the future value is 2.65330 × $200,000 = $530,660, the present value of an ordinary annuity is 12.46221 × $200,000 = $2,492,442, and the present value of an annuity due is 13.08532 × $200,000 = $2,617,064. What is the fair value of the lottery payments according to GAAP? a. $530,660 b. $2,492,442 c. $2,617,064 d. $4,000,000
Answer each of the following independent questions. 1. Alex Meir recently won a lottery and has the option of receiving one of the following three prizes: (1) $64,000 cash immediately, (2) $20,000 cash immediately and a six-period annuity of $8,000 beginning one year from today, or (3) a six-period annuity of $13,000 beginning one year from today. Assuming an interest rate of 6%, which option should Alex choose? 2. The Weimer Corporation wants to accumulate a sum of money to repay certain debts due on December 31, 2025. Weimer will make annual deposits of $100,000 into a special bank account at the end of each of 10 years beginning December 31, 2016. Assuming that the bank account pays 7% interest compounded annually, what will be the fund balance after the last payment is made on December 31, 2025?
Alex Meir recently won a lottery and has the option of receiving one of the following three prizes: (1) $94,000 cash immediately, (2) $38,000 cash immediately and a six-period annuity of $9,700 beginning one year from today, or (3) a six-period annuity of $19,600 beginning one year from today. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) 1. Assuming an interest rate of 7%, determine the present value for the above options. Which option should Alex choose?2. The Weimer Corporation wants to accumulate a sum of money to repay certain debts due on December 31, 2030. Weimer will make annual deposits of $190,000 into a special bank account at the end of each of 10 years beginning December 31, 2021. Assuming that the bank account pays 8% interest compounded annually, what will be the fund balance after the last payment is made on December 31, 2030?
Susan won the lottery today which will pay an annual perpetuity of X, with the first payment occurring five years from today. The perpetuity has a present value of 100,000 based on an annual effective interest rate of 1% for the first ten years and 5% for all years thereafter. Calculate X. A. 4,100 B. 4,224 C. 4,357 D. 4,401 E. 5,696
Kevin won a lottery that will pay him $620000 at the end of each of the next twenty years. Assuming an appropriate interest rate is 9% compounded annually, what is the present value of this amount? $110627. $6169073. $5659701. $31719274.
Gabrielle just won $2.7 million in the state lottery. She is given the option of receiving a of $1,200,000 now, or she can elect to receive $90,000 at the end of each of the next 30 years. If Gabrielle can earn 5% annually on her investments, which option should she take? If Gabrielle takes the prize as an annuity, the present value of the 30-year ordinary annuity is? Can you do it in an excel format?
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: 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?
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.
Assume that Aliza has a winning lottery ticket and she are the given the option of accepting the value of P1,000,000 paying interest three years from now or taking the present value of the P1,000,000 now. The sponsor of the prize is using a 6% interest and discount rate. a. If she choose to receive the present value of the prize now, how much will she receive? b. If she choose to receive the value 3 years from now, how much will she receive? c. Which of the options will give her higher amount?
You won the state lottery and took the payout as a $1,823,475 lump sum today. Your spouse has decided that you need to invest this money for the next 9 years and can expect it to earn an average annual rate of return of 8.00%. If this comes to pass, how much money will be in the account at the end of the period?