Joey is one of several winners who shared a lottery ticket. There are three plans offered to receive the after-taxproceeds.Plan 1: $100,000 nowPlan 2: $15,000 per year for 8 years beginning 1 year from now. Total is$120,000.Plan 3: $45,000 now, another $45,000 four years from now, and a final$45,000 eight years from now. Total is $135,000.Joey, a quite conservative person financially, plans to invest all of the proceeds as he receives them. He expects tomake a real return of 6% per year. Use the 8-year time frame and an average inflation of 4% per year to determinewhich plan provides the best deal.

Time value of money: It is a concept in which the present value of money is considered to be best as…

Joey, a quite conservative person financially, plans to invest all of the proceeds as he receives them. He expects to make a real return of 6% per year. Use the 8-year time frame and an average inflation of 4% per year to determine which plan provides the best deal.

Joey, a quite conservative person financially, plans to invest all of the proceeds as he receives them. He expects to make a real return of 6% per year. Use the 8-year time frame and an average inflation of 4% per year to determine which plan provides the best deal.

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter17: Long-term Investment Analysis

Section: Chapter Questions

Problem 7E

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Question

Joey is one of several winners who shared a lottery ticket. There are three plans offered to receive the after-tax
proceeds.
Plan 1: $100,000 now
Plan 2: $15,000 per year for 8 years beginning 1 year from now. Total is
$120,000.
Plan 3: $45,000 now, another $45,000 four years from now, and a final
$45,000 eight years from now. Total is $135,000.
Joey, a quite conservative person financially, plans to invest all of the proceeds as he receives them. He expects to
make a real return of 6% per year. Use the 8-year time frame and an average inflation of 4% per year to determine
which plan provides the best deal.

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