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 thepayments. (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 $39,500 with the first payment occurring when Chris turns inthe winning ticket. Chris will be taxed on each of these payments at a rate of 26%.Click here to view factor tables.Compute the present value of the cash flows for lump sum payout. (Round answer to O decimal places, e.g. 458,581.)Lump sum payout$Assuming Chris can earn an 9% rate of return (compounded annually) on any money invested during this period, compute the presentvalue 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 payoutAnnuity PayoutWhich pay-out option should he choose?$eTextbook and Media273,672GRITAL.IDELLD

INTRODUCTION Present value of annuity payout is the present value of all the future payouts (net of…

Answered: Chris Long has just learned he has won…

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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(Evaluating Payment Alternatives) Howie Long has just learned he has won a $500,000 prize in the lottery. The lottery has given him two options for receiving the payments. (1) If Howie takes all the money today, the state and federal governments will deduct taxes at a rate of 46% immediately. (2) Alternatively, the lottery offers Howie a payout of 20 equal payments of $36,000 with the first payment occurring when Howie turns in the winning ticket. Howie will be taxed on each of these payments at a rate of 25%.InstructionsAssuming Howie can earn an 8% rate of return (compounded annually) on any money invested during this period, which payout option should he choose?
John Long has just learned he has won a $508,300 prize in the lottery. The lottery has given him two options for receiving the payments. (1) If John takes all the money today, the state and federal governments will deduct taxes at a rate of 46% immediately. (2) Alternatively, the lottery offers John a payout of 20 equal payments of $39,600 with the first payment occurring when John turns in the winning ticket. John will be taxed on each of these payments at a rate of 25%. 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 John can earn an 10% 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 LA 233818 $
Howie Long has just learned he has won a $500,000 prize in the lottery. The lottery has given him two options for receiving the payments. (1) If Howie takes all the money today, the state and federal governments will deduct taxes at a rate of 46% immediately. (2) Alternatively, the lottery offers Howie a payout of 20 equal payments of $36,000 with the first payment occurring when Howie turns in the winning ticket. Howie will be taxed on each of these payments at a rate of 25%. Instructions Assuming Howie can earn an 8% rate of return (compounded annually) on any money invested during this period, which payout option should he choose?
Howie Long has just learned he has won a $500,000 prize in the lottery. The lottery has given him two options for receiving the payments. (1) If Howie takes all the money today, the state and federal governments will deduct taxes at a rate of 46% immediately. (2) Alternatively, the lottery offers Howie a payout of 20 equal payments of $36,000 with the first payment occurring when Howie turns in the winning ticket. Howie will be taxed on each of these payments at a rate of 25%. Assuming Howie can earn an 8% rate of return (compounded annually) on any money invested during this period, compute the present value of the cash flows for annuity payout.
Morgan John has just learned he has won a $2,800,000 prize in the state lottery. He has two options for receiving the payments: (1) If Morgan takes all the money today, the state and federal governments will deduct taxes at a combined rate of 40% immediately. (2) Alternatively, the lottery offers Morgan a payout of 20 equal payments of $199,900 with the first payment occurring when Morgan turns in the winning ticket. Morgan will be taxed on each of these payments at a rate of 30%. Assuming Morgan can earn an 6% rate of return (compounded annually) on any money invested during this period. Hick here to view factor tables Compute the present value of the cash flows for the lump sum payout. Lump sum payout $ Compute the present value of the cash flows for the annuity payout. (Round factor values to 5 decimal places, eg. 1.25124 and final answer to O decimal places, eg. 458,581) Present value of annuity payout $ Which pay-out option should he choose? SUPE
Archibald Andrews has just learned that he won $1,040,000 in the lottery. Archie has three options for payment:Option A: a lump-sum payment of $1,040,000 right now, in which case 45% will be deducted for taxes. We do not know the level of Archie’s investment skills and therefore are unsure what rate of return he will earn on the lump sum.Option B: 20 equal annual payments of $72,000, the first to occur immediately. Taxes of 25% of will be deductedfrom each payment. Assume an inherent interest rate of 8% APR.Option C: 36 equal semi-annual payments of $36,000, the first to occur in exactly one year. Taxes of 15% will be deducted from each payment. For this option, assume interest of 8% APR, compounded semi-annually.Calculate the present value of each option A, B, and C.
Shelley wants to cash in her winning lottery ticket. She can either receive twelve, $199,000 semiannual payments starting today, or she can receive a single-amount payment today based on a 6% annual interest rate. What is the single-amount payment she can receive today? Multiple Choice $1,173,406. $2,040,271. $1,345,180. $1,264,677.
Jose wants to cash in his winning lottery ticket. He can either receive eight, $6,000 annual payments starting today, or he can receive one lump-sum payment today based on a 3% annual interest rate. What would be the lump-sum payment?
Jim has just won the lottery. He is offered 2 choices to access his winnings. Choice A: $90,000 now, Choice B: $10,000 at the end of each year from year 1 to year 5 and $20,000 at the end of each year from year 6 to year 10. Find the discounted present value of these twochoices if the relevant interest rate is 8% per year and state the better choice for Jim?
Ira Schwab wins the lottery and decides to take the one lump sum of$500,000 minus taxes. Ira receives a check for $300,000 after taxes. Usingthe rule of 72, determine the following:a. How long will it take him to get $600,000 if he can earn 3 percent?b. How long will it take him to get $600,000 if he can earn 6 percent?c. How long will it take him to get $1,200,000 if he can earn 9 percent?
Karl Yates needs $9,000 to pay for the remodeling work on his house. A contractor agrees to do the work in 10 months. How much should Karl deposit at 6.3% in order to accumulate the $9,000 by that time? Karl should deposit S (Round to the nearest cent.)
Barb Muller wins the lottery. She wins $20,000 per year to be paid for 10 years. The state offers her the choice of a cash settlement now instead of the annual payments for 10 years. If the interest rate is 6%, what is the amount the state will offer for a settlement today?

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