Assume you won the lottery and that you have two options for receiving the prize money. You can receive $300,000today or receive payments of $2,700 a month for 20 years. If you can make a nominal 8% return, which option shouldyou take and why? (Hint: To compare investments involving cash flows, you always compare the present value of thefuture cash flows to identify the most attractive option.)Multiple ChoiceThe $2,700 per month. It is better to have payments spread out than receive a lump sum.The lump sum today. The present value of the lump sum is greater than the payments.The $2,700 per month. The present value of the payments is greater than the lump sum.The lump sum today. It has greater earnings potential.27

Present value is the current value of a future sum of money or stream of cash flow given a specified…

Answered: Assume you won the lottery and that you…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Answer for part d and e only.
Your broker has offered you an investment opportunity at a cost of $ 500. The opportunity offers $100 in 1 year, $200 in 2 years, and $300 in 3 years. If you require a 10% return on investments of similar risk, should you take the opportunity?

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