mathod.com Course Home ACCT-2302-86036 Homework: Chapter 26 Homework Score: 0 of
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mathod.com Course Home ACCT-2302-86036 Homework: Chapter 26 Homework Score: 0 of 1 pt 1 of 3 (1 complete) E26-23 (similar to) Congratulations! You have won a state lotery. The state lottery offers you the following (after-tax) payout options E(Click the icon to view the payout options.) (Cilick the ioon to view Present Valiue of $1 table) Click the loon to view Present Value of Ordinary Annuity of $1 table.) (cick te oon to view Fune Value of S1 table) ¡Click the icon to viow Future VakadOrdinary Annuity of S t table) Assuming you can earn 12% on your funds, which option would you prefer? The present value of the payout is: (Round your answers to the nearest whole dollar) Option #1: Data Table Option #1 $14,000,00 after five years Option #2: $2,100,000 per year for five years Opsion 3: $13,000,000 after three yoars Print Done Erter ay rumber in the edit fields and then click Check Answer 3 Pamarn Clear All esc 3 4 6Explanation / Answer
present value of option -1
Future value/(1+r)^n Fv = 14000000 r = 12% n = 5
14000000/(1.12)^5
7943976
present value of option -2
year
cash flow
present value of cash flow = cash flow/(1+r)^n r= 12%
1
2100000
1875000
2
2100000
1674107
3
2100000
1494739
4
2100000
1334588
5
2100000
1191596
present value of option -2
7570030
present value of option-3
Future value/(1+r)^n Fv = 13000000 r= 12% n = 3
13000000/(1.12)^3
9253143
Option-3 is the better one as it results in maximum present value
present value of option -1
Future value/(1+r)^n Fv = 14000000 r = 12% n = 5
14000000/(1.12)^5
7943976
present value of option -2
year
cash flow
present value of cash flow = cash flow/(1+r)^n r= 12%
1
2100000
1875000
2
2100000
1674107
3
2100000
1494739
4
2100000
1334588
5
2100000
1191596
present value of option -2
7570030
present value of option-3
Future value/(1+r)^n Fv = 13000000 r= 12% n = 3
13000000/(1.12)^3
9253143
Option-3 is the better one as it results in maximum present value
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