After hearing a knock at your front door, you are surprised to see the Prize Pat

Question

After hearing a knock at your front door, you are surprised to see the Prize Patrol from a large, well-known magazine subscription company. It has arrived with the good news that you are the big winner, having won $30 million. You have three options.

Your financial adviser tells you that it is reasonable to expect to earn 13 percent on investments.   

Required:
1. Calculate the present value of each option. (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1.) (Use appropriate factor(s) from the tables provided. Enter your answers in dollars, not in millions.)

    

2. Determine which option you prefer.

(a) Receive $1.5 million per year for the next 20 years. (b) Have $10.5 million today. (c) Have $2.25 million today and receive $1,200,000 for each of the next 20 years.

Explanation / Answer

Present value 1) option A discount pv year amount factor at 13% 1---20     1,500,000.00 7.025     10,537,500.00 option B discount pv year amount factor at 13% now 10,500,000.00 1.000     10,500,000.00 option c discount pv year amount factor at 13% now     2,250,000.00 1.000       2,250,000.00 1---20     1,200,000.00 7.025       8,430,000.00 Net present value     10,680,000.00 2) option c discount factor used here are rounded to three decimal figures,if given in your question table figures are rounded upto five figures than used that figure to get exact answer

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.