What is the fair value of the lottery payments according to the Financial Accounting Standards Board (FASB)?
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An individual recently won a lottery and has the opportunity to receive $100,000 per year at the end of the year for the next 25 years. Assuming an annual interest rate of 5% is appropriate, the present value of 1 is 0.29530 × $100,000 = $29,530, the present value of an ordinary annuity is 14.09394 × $100,000 = $1,409,394, and the present value of an annuity due is 14.79864 × $100,000 = $1,479,864.
What is the fair value of the lottery payments according to the Financial Accounting Standards Board (FASB)?
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- Using the information provided, what transaction represents the best application of the present value of an annuity due of $1? A. Falcon Products leases an office building for 8 years with annual lease payments of $100,000 to be made at the beginning of each year. B. Compass, Inc., signs a note of $32,000, which requires the company to pay back the principal plus interest in four years. C. Bahwat Company plans to deposit a lump sum of $100.000 for the construction of a solar farm In 4 years. D. NYC Industries leases a car for 4 yearly annual lease payments of $12,000, where payments are made at the end of each year.How much would you invest today in order to receive $30,000 in each of the following (for further Instructions on present value In Excel, see Appendix C): A. 10 years at 9% B. 8 years at 12% C. 14 years at 15% D. 19 years at 18%Electro Corporation bought a new machine and agreed to pay for it in equal annual installments of 5,000 at the end of each of the next 5 years. Assume a prevailing interest rate of 15%. The present value of an ordinary annuity of 1 at 15% for 5 periods is 3.35. The future amount of an ordinary annuity of 1 at 15% for 5 periods is 6.74. The present value of 1 at 15% for 5 periods is 0.5. How much should Electro record as the cost of the machine? a. 12,500 b. 16,750 c. 25,000 d. 33,700
- Present Value of an Annuity Ralph Benke wants to make 8 equal semiannual withdrawals of 8,000 from a fund that will earn interest at 11 % compounded semiannually. Required: How much would Ralph have to invest on: 1. January 1, 2019, if the first withdrawal is made on July 1, 2019 2. July 1, 2019, if the first withdrawal is made on July 1, 2019 3. January 1, 2019, if the first withdrawal is made on January 1, 2022Amount of an Annuity John Goodheart wishes to provide for 6 annual withdrawals of 3,000 each beginning January 1, 2029. He wishes to make 10 annual deposits beginning January 1, 2019, with the last deposit to be made on January 1, 2028. Required: If the fund earns interest compounded annually at 10%, how much is each of the 10 deposits?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
- Suppose you just won the state lottery, and you have a choice between receiving $4,500,000 today or a 20-year annuity of $250,000, with the first payment coming one year from today. What rate of return is built into the annuity? Disregard taxes. a. 1.03% b. 0.13% c. -0.77% d. 2.83% e. 1.93%Congratulations! You have just won a $40 million lottery and have electedto receive $2 million per year for 20 years. Assume that a 4 percent interestrate is used to evaluate the annuity and that you receive each payment atthe beginning of the year.a. What is the present value of the lottery?b. How much interest is earned on the present value to make the $2 millionper-year payment?1. Find the present value of a deferred annuity of ₱4722 every six months for 5 years that is deferred for 1 years, if money is worth 1% compounded semi-annually. 2. Don Solomon wants to set up a scholarship program with his alma mater. If ₱505651 is needed per year for the scholars, how much must he invest today at 1.4% compounded annually to fund the scholarship program in perpetuity?
- You are applying for a scholarship currently valued at $6,500. If you are awarded it at the end of next year, how much will it be worth in today's dollars, assuming inflation of 2.5 percentSuppose you just won the state lottery, and you have a choice between receiving $2,679,000 today or a 20-year annuity of $261,000, with the first payment coming one year from today. What rate of return is built into the annuity? Disregard taxes. Group of answer choices 8.96% 7.41% 7.82% 8.55% 7.04%A student wants save for college which begins in four years. How much will the student save assuming equal deposits of $2,000 at the beginning of each year and 5% interest? Following are appropriate factors from tables: Table % / n Present Value of annuity due $1 Present Value of ordinary annuity of $1 Future value of annuity due $1 Future Value of ordinary annuity of $1 5%/4 3.72325 3.54595 4.52563 4.31013 Required Computation:
