GB 112/212 MANAGERIAL ACC. W/ACCESS >C<
17th Edition
ISBN: 9781260218831
Author: Libby
Publisher: MCG CUSTOM
expand_more
expand_more
format_list_bulleted
Question
Chapter 9, Problem 9.12P
To determine
Identify the best option for the given transaction and the factors that influence the decision process.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
A lottery corporation sells a ticket
for a chance to win $500,000. If
you win, the prize winnings will
be spread out over time with
your first payment of $150,000
today. The second payment of $
150,000 would be released to
you in a year, and the last
payment of $200,000 would be
released the following year. If
you could earn 3.5%
compounded annually, what is
the value of the prize today?
Congratulations! You have just won a small lottery. Lottery officials give you three alternatives for receiving your winnings:
a)$8000 now
b)$1000 per year for 12 years
c)$15000 in 10 years
If you can earn 6.5% on your money, which alternative should you choose?
3. Which lottery payout scheme is better?
Suppose you win a small lottery and have the choice of two ways to be paid: You can accept the money in a lump sum or in a series of payments over time. If you pick the lump sum, you get $2,950 today. If you pick payments over time, you get three payments: $1,000 today, $1,000 1 year from today, and $1,000 2 years from today.
At an interest rate of 8% per year, the winner would be better off accepting the , since that choice has the greater present value.
At an interest rate of 10% per year, the winner would be better off accepting , since it has the greater present value.
Years after you win the lottery, a friend in another country calls to ask your advice. By wild coincidence, she has just won another lottery with the same payout schemes. She must make a quick decision about whether to collect her money under the lump sum or the payments over time. What is the best advice to give your friend?
The lump sum is…
Chapter 9 Solutions
GB 112/212 MANAGERIAL ACC. W/ACCESS >C<
Ch. 9 - Prob. 1QCh. 9 - Prob. 2QCh. 9 - Prob. 3QCh. 9 - Prob. 4QCh. 9 - Prob. 5QCh. 9 - Prob. 6QCh. 9 - Prob. 7QCh. 9 - Define deferred revenue. Why is it a liability?Ch. 9 - Prob. 9QCh. 9 - Define working capital. How is working capital...
Ch. 9 - Prob. 11QCh. 9 - When a company signs a capital lease, does it...Ch. 9 - Prob. 13QCh. 9 - Define annuity.Ch. 9 - Prob. 15QCh. 9 - Prob. 16QCh. 9 - What is the present value factor for an annuity of...Ch. 9 - The university golf team needs to buy a car to...Ch. 9 - Which of the following best describes accrued...Ch. 9 - Prob. 4MCQCh. 9 - A company is facing a lawsuit from a customer. It...Ch. 9 - Which of the following transactions would usually...Ch. 9 - How is working capital calculated? a. Current...Ch. 9 - Prob. 8MCQCh. 9 - SmallFish Company borrowed 100,000 at 8% interest...Ch. 9 - Prob. 10MCQCh. 9 - Prob. 9.1MECh. 9 - Computing and Interpreting Accounts Payable...Ch. 9 - Prob. 9.3MECh. 9 - Prob. 9.4MECh. 9 - Prob. 9.5MECh. 9 - Prob. 9.6MECh. 9 - Prob. 9.7MECh. 9 - Prob. 9.8MECh. 9 - Prob. 9.9MECh. 9 - Computing the Present Value of an Annuity What is...Ch. 9 - Prob. 9.11MECh. 9 - Prob. 9.12MECh. 9 - Prob. 9.1ECh. 9 - Recording Payroll Costs Paul Company completed the...Ch. 9 - Prob. 9.3ECh. 9 - Recording a Note Payable through Its Time to...Ch. 9 - Prob. 9.5ECh. 9 - Prob. 9.6ECh. 9 - Prob. 9.7ECh. 9 - Prob. 9.8ECh. 9 - Reporting Contingent Liabilities Jones Soda is a...Ch. 9 - Prob. 9.10ECh. 9 - Prob. 9.11ECh. 9 - Prob. 9.12ECh. 9 - Computing Four Present Value Problems On January 1...Ch. 9 - Prob. 9.14ECh. 9 - Prob. 9.15ECh. 9 - Prob. 9.16ECh. 9 - Prob. 9.17ECh. 9 - Prob. 9.18ECh. 9 - Prob. 9.19ECh. 9 - Prob. 9.20ECh. 9 - Prob. 9.21ECh. 9 - Prob. 9.22ECh. 9 - Prob. 9.23ECh. 9 - Prob. 9.24ECh. 9 - Recording and Reporting Current Liabilities LO9-1...Ch. 9 - Prob. 9.2PCh. 9 - Prob. 9.3PCh. 9 - Recording and Reporting Accrued Liabilities and...Ch. 9 - Prob. 9.5PCh. 9 - Prob. 9.6PCh. 9 - Prob. 9.7PCh. 9 - Prob. 9.8PCh. 9 - Prob. 9.9PCh. 9 - Prob. 9.10PCh. 9 - Prob. 9.11PCh. 9 - Prob. 9.12PCh. 9 - Prob. 9.13PCh. 9 - Prob. 9.14PCh. 9 - ALTERNATE PROBLEMS AP9-1 Recording and Reporting...Ch. 9 - Prob. 9.2APCh. 9 - Prob. 9.3APCh. 9 - Prob. 9.4APCh. 9 - Prob. 9.5APCh. 9 - Prob. 9.6APCh. 9 - Prob. 9.7APCh. 9 - Prob. 9.8APCh. 9 - Prob. 9.1CONCh. 9 - Annual Report Cases Finding Financial Information...Ch. 9 - Finding Financial Information Refer to the...Ch. 9 - Prob. 9.3CPCh. 9 - Prob. 9.4CPCh. 9 - Prob. 9.5CP
Knowledge Booster
Similar questions
- Congratulations! You have just won the lottery! However, the lottery bureau has just informed you that you can take your winnings in one of two ways. You can Select to receive a payment of $1,000,000 now or a payment of $1,750,000 in five years. Assume you can earn 5% on funds that you invest today. How much money would you have in five years if you take the immediate $1,000,000 payment and invest it? What does this tell you about the wisdom of selecting the immediate payment versus the future payment? Using the same 5% interest rate, what is the present value of the $1,750,000 that you could receive in five years? What does this calculation tell you about which lottery payout option you should choose? What do your results suggest as a general rule for approaching such problems? (Make your choices based purely on the time value of money.arrow_forwardSuppose you played a number picking game from the Lottery. Your lucky numbers are your five most recent test scores from this and other courses. As luck would have it, those numbers won you the jackpot. After having your picture taken with a giant fake cardboard check, the Lottery offers you an annuity consisting of 20 payments of $150,000, with the first payment received immediately after your photo session and 19 additional payments each year thereafter. Assuming a discount rate of 5%, what is the total value of your jackpot in present value terms? Write the answer below without dollar signs or commas, and express the answer to the nearest cent.arrow_forwardSuppose you have won $1,122,000 in the lottery. You have two options. Option 1: Take a lump sum of $953,700. Option 2: Receive the entire amount of your winnings in 240 monthly installments of $4,675.00. Either way, you have decided to be very disciplined about this money and invest all you receive. a. Suppose you take Option 1 and deposit the lump sum of $953,700 into an account that pays an APR of 4% compounded monthly. Find the account balance after 20 years. Option 1: $ _____________ b. Suppose you take Option 2 and deposit your monthly installments of $4,675 into an account with the same terms: APR of 4% compounded monthly. Find the account balance after 240 monthly deposits. Option 2: $ _____________ c. How much do you gain by taking the money in a lump sum (Option 1)? Gain by Choosing Option 1: $ _____________arrow_forward
- You have won the lottery, and you must choose between three award options. You can select one of the following options: To receive a lump sum today of $75 million, To receive 10 end-of-year payments of $12 million, to receive 30 end-of-year payments of $8 million. If you expect to earn 9% annually: What is the present value of alternative ii? What is the present value of alternative iii? Which one you must choose?arrow_forwardLottery Your dreams of becoming rich have just come true. You have won the State of Tranquility's Lottery. The State offers you two payment plans for the $1.000,000 advertised jackpot. You can take annual payments of $20,000 at the end of the year for the next 50 years or $166,090 today. a. If your investment rate over the next 50 years is 14%, which payoff will you choose? b. If your investment rate over the next 50 years is 10%, which payoff will you choose? c. At what investment rate will the annuity stream of $20.000 be the same as the lump-sum payment of $166.090? a. If your investment rate over the next 50 years is 14%, what is the present value of the $20,000 annual payments today? (Round to the nearest dollar.)arrow_forwardNEEDS TO BE DONE ON EXCEL You have just been notified that you have won the local Bucks for Life lottery. The lottery rules state that you have the option of receiving $25,000 annually for the rest of your life beginning immediately or a single lump sum today. You are not sure which option to take but to begin with you want to be assured that the lottery has enough money set aside to make the annual payments if you choose that option. Your accountant emails you to let you know that “it appears that the lottery has $200,000 in a separate bank account to cover your annual payment.” Assuming an interest rate of 12%, is this enough cash to cover the annual payments of $25,000 over your lifetime?arrow_forward
- can you solve in the excel file please. Thanks 2. ABC Lottery Corporation runs the "Millionaire Life" lottery. The winner of the Grand Prize can choose either $1,000,000 per year for 25 years or a single cash payment of $17,000,000. Which option should be chosen if the payments are made at the beginning of each year and, on low-risk investments, money can earn 3.2% compounded annually?arrow_forwardImagine you have just won the Ohio Vax-Million lottery! However, you are infomed that you have two options to get the award maney. option A pays $1,000,000 immediately. Option B pays $1,750,000 at the end of five years from now. Using a discount rate of 5 percent, based on present values, find the present value of the Option B. Which would you choose? m Nper (or N) =n*m Rate (or I/Y)=i/m PV PMT FVarrow_forwardThe top prize for the state lottery is $105,000,000. You have decided it is time for you to take a chance and purchase a ticket. Before you purchase the ticket, you must decide whether to choose the cash option or the annual payment option. If you choose the annual payment option and win, you will receive $105,000,000 in 20 equal payments of $5,250,000—one payment today and one payment at the end of each of the next 19 years. If you choose the cash payment, you will receive a one-time lump sum payment of $63,830,111.58. You can invest the proceeds and earn 7%. At what interest rate would you be indifferent between the cash and annual payment options? (Round factor values to 3 decimal places, e.g. 1.521 and final answer to 0 decimal places, e.g. 15%.)Click here to view the PV Table. Interest rate %arrow_forward
- Lottery. Your dreams of becoming rich have just come true. You have won the State of Tranquility's Lottery. The State offers you two payment plans for the $3,000,000 advertised jackpot. You can take annual payments of $120,000 at the end of the year for the next 25 years or $1,280,973 today. a. If your investment rate over the next 25 years is 9%, which payoff will you choose? b. If your investment rate over the next 25 years is 7%, which payoff will you choose? c. At what investment rate will the annuity stream of $120,000 be the same as the lump-sum payment of $1,280,973? a. If your investment rate over the next 25 years is 9%, what is the present value of the $120,000 annual payments today? $nothing (Round to the nearest dollar.)arrow_forwardYou have just won the Multi-State Lottery. You have the option of receiving a check for $35,000,000 every year at the end of the next 22 years. The lottery commission also allows you the option of receiving a one-time payment of $387,143,417 when you turn in the winning ticket. What is the approximate interest rate that the lottery commission is using to determine the one-time payment? (Use spreadsheet software or a financial calculator to calculate your answer. Do not round any intermediary calculations, and round your final answer to the nearest percent, X%.) Group of answer choices 7% 6% 8% 5%arrow_forwardOn a whim you purchased a scratch−off lottery ticket at the gas station. It must have been your lucky day because you won $3,000,000. Being logical and rational you decide to invest the money at 5% for 14 years until you are ready to start a family. At the end of 14 years, how much will your investment be worth? -the future value of $1 table -the future value of annuity of $1 tablearrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
AccountingAccountingISBN:9781337272094Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.Publisher:Cengage Learning,
Accounting Information SystemsAccountingISBN:9781337619202Author:Hall, James A.Publisher:Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis...AccountingISBN:9780134475585Author:Srikant M. Datar, Madhav V. RajanPublisher:PEARSON
Intermediate AccountingAccountingISBN:9781259722660Author:J. David Spiceland, Mark W. Nelson, Wayne M ThomasPublisher:McGraw-Hill Education
Financial and Managerial AccountingAccountingISBN:9781259726705Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting PrinciplesPublisher:McGraw-Hill Education
Accounting
Accounting
ISBN:9781337272094
Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:Cengage Learning,
Accounting Information Systems
Accounting
ISBN:9781337619202
Author:Hall, James A.
Publisher:Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis...
Accounting
ISBN:9780134475585
Author:Srikant M. Datar, Madhav V. Rajan
Publisher:PEARSON
Intermediate Accounting
Accounting
ISBN:9781259722660
Author:J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:9781259726705
Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:McGraw-Hill Education