Chris Long has just learned he has won a $506,800 prize in the lottery. The lottery has given him two options for receiving the payments. (1) If Chris takes all the money today, the state and federal governments will deduct taxes at a rate of 46% immediately. (2) Alternatively, the lottery offers Chris a payout of 20 equal payments of $39,500 with the first payment occurring when Chris turns in the winning ticket. Chris will be taxed on each of these payments at a rate of 26%. Click here to view factor tables. Compute the present value of the cash flows for lump sum payout. (Round answer to O decimal places, e.g. 458,581.) Lump sum payout $ Assuming Chris can earn an 9% rate of return (compounded annually) on any money invested during this period, compute the present value of the cash flows for annuity payout. (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 458,581.) Present value of annuity payout $ Which pay-out option should he choose? Annuity Payout 273,672
Chris Long has just learned he has won a $506,800 prize in the lottery. The lottery has given him two options for receiving the payments. (1) If Chris takes all the money today, the state and federal governments will deduct taxes at a rate of 46% immediately. (2) Alternatively, the lottery offers Chris a payout of 20 equal payments of $39,500 with the first payment occurring when Chris turns in the winning ticket. Chris will be taxed on each of these payments at a rate of 26%. Click here to view factor tables. Compute the present value of the cash flows for lump sum payout. (Round answer to O decimal places, e.g. 458,581.) Lump sum payout $ Assuming Chris can earn an 9% rate of return (compounded annually) on any money invested during this period, compute the present value of the cash flows for annuity payout. (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 458,581.) Present value of annuity payout $ Which pay-out option should he choose? Annuity Payout 273,672
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question

Transcribed Image Text:Your answer is partially correct.
Chris Long has just learned he has won a $506,800 prize in the lottery. The lottery has given him two options for receiving the
payments. (1) If Chris takes all the money today, the state and federal governments will deduct taxes at a rate of 46% immediately. (2)
Alternatively, the lottery offers Chris a payout of 20 equal payments of $39,500 with the first payment occurring when Chris turns in
the winning ticket. Chris will be taxed on each of these payments at a rate of 26%.
Click here to view factor tables.
Compute the present value of the cash flows for lump sum payout. (Round answer to O decimal places, e.g. 458,581.)
Lump sum payout
$
Assuming Chris can earn an 9% rate of return (compounded annually) on any money invested during this period, compute the present
value of the cash flows for annuity payout. (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to O decimal places, e.g.
458,581.)
Present value of annuity payout
Annuity Payout
Which pay-out option should he choose?
$
eTextbook and Media
273,672
GRITAL.
I
DELL
D
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