Assume you won a million dollars in the Texas Lottery. You have two options: 1) collect $426,000 now or 2) receive $50,000 a year (end-of-year) for the next 20 years. Which option would you opt for assuming a 10% interest rate? Use an xcel formula to justify your choice.

Assume you won a million dollars in the Texas Lottery. You have two options: 1) collect $426,000 now or 2) receive $50,000 a year (end-of-year) for the next 20 years. Which option would you opt for assuming a 10% interest rate? Use an xcel formula to justify your choice.

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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Question

Assume you won a million dollars in the Texas Lottery. You have two options: 1) collect
S426,000 now or 2) receive $50,000 a year (end-of-year) for the next 20 years. Which option
would you opt for assuming a 10% interest rate? Use an Excel formula to justify your choice.

Expert Solution

Step 1

Present value: It states that that today's sum of capital is valued more than that of the same capital amount in the future.

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