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 inner, having won $34 mllion. You have three options. (a) Receive $1.7 milion per year for the next 20 years. Have $325 milion today and receive $1 400,00 or each of he next 20 years C) Have $3.25 million today and receive $1.400,000 for each of the next 20 years. Your financial adviser tells you that it is reasonable to expect to earn 14 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.) Present Value Option A Option B Option C

Explanation / Answer

Option A = $1.7 million * PVIFA @ 14% 20 years = $1.7 million*6.6231 = $11.26 million Option B = $11.5 million Option C = $3.25 million + ($1.4 million*PVIFA @14% 20 years) = 3.25 million + $1.4 million*6.6231 = 3.25 million + $9.27 = $12.52 million

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