Sally has won the grand prize in a lottery and must choose between the following three options: (hint: find the PV of each option) a. Receive a lump sum payment of $10,000,000. b. Receive annual end of the year payments of $2,000,000 for the next 8 years. c. Receive annual end of the year payments of $1,500,000 for the next 20 years. Which option should Sally choose based on an annual investment rate of 6%?

Sally has won the grand prize in a lottery and must choose between the following three options: (hint: find the PV of each option) a. Receive a lump sum payment of $10,000,000. b. Receive annual end of the year payments of $2,000,000 for the next 8 years. c. Receive annual end of the year payments of $1,500,000 for the next 20 years. Which option should Sally choose based on an annual investment rate of 6%?

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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Sally has won the grand prize in a lottery and must choose between the following three options: (hint: find the PV of each option) Receive a lump sum payment of $10,000,000. Receive annual end of the year payments of $2,000,000 for the next 8 years. Receive annual end of the year payments of $1,500,000 for the next 20 years. Which option should Sally choose based on an annual investment rate of 6%?
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1. Natalie won the lottery and is deciding between the options of receiving the annual payment option of $450,000 per year for 25 years beginning today, or receiving one lump-sum amount today. Natalie can earn 5% investing this money. At what lump-sum payment amount would she be indifferent between the two alternatives? (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.)