After hearing a knock at your front door, you are surprised to see the Prize Pat
ID: 2563053 • Letter: A
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 $21 million. You have three options. (a) Receive $1.05 million per year for the next 20 years. (b) Have $8.25 milon today. (c) Have S2.25 million today and receive $750,000 for each of the next 20 years. 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 S1.) (Use appropriate factor(s) from the tables provided. Enter your answers in dollars, not in millions.) Present Value Option A Option B Option C 2. Determine which option you prefer. Option A Option O Option BExplanation / Answer
Dear Student Thank you for using Chegg Please find below the answer and please give thumbs up Statementshowing Computations Paticulars Amount Present Value of Option A = 1050,000*7.0248 7,376,040.00 Present Value of Option B 8,250,000.00 Present Value of Option C = 2,250,000 + 750,000*7.0248 7,518,600.00 Option B is best since it has higher PV Time PVF 13% 1.00 0.8850 2.00 0.7831 3.00 0.6931 4.00 0.6133 5.00 0.5428 6.00 0.4803 7.00 0.4251 8.00 0.3762 9.00 0.3329 10.00 0.2946 11.00 0.2607 12.00 0.2307 13.00 0.2042 14.00 0.1807 15.00 0.1599 16.00 0.1415 17.00 0.1252 18.00 0.1108 19.00 0.0981 20.00 0.0868 PVF for 20 Years at 13% 7.0248
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