Jack just discovered that he holds the winning ticket for the $87 million "mega" lottery. Now he must decide which alternative to choose: (a) a $44 million lump-sum payment today or (b) a payment of $2.9 million per yer for 30 years. With Option (b) the first payment will be made today. If Jack's opportunity cost is 5 percent, what is the present value of Option (b)? (Use the following format for your answer - xx,xxx,xxx)

Jack just discovered that he holds the winning ticket for the $87 million "mega" lottery. Now he must decide which alternative to choose: (a) a $44 million lump-sum payment today or (b) a payment of $2.9 million per yer for 30 years. With Option (b) the first payment will be made today. If Jack's opportunity cost is 5 percent, what is the present value of Option (b)? (Use the following format for your answer - xx,xxx,xxx)

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Similar questions

Megan Brink is offered the possibility of investing $13,119 today at 9% Interest per year in a desire to accumulate $22,000. How many years must Brink wait to accumulate $22,000? (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided. Round your "PV of a single amount" to 4 decimal places and final answer to the nearest whole number.) Present Value Future Value p (PV of a Single Amount) Years years
You just won the TVM Lottery. You will receive $1 million today plus another 10 annual payments that increase by $450,000 per year. Thus, in one year, you receive $1.45 million. In two years, you get $1.9 million, and so on. If the appropriate interest rate is 6.2 percent, what is the value of your winnings today? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89.) Present value : $ 22,656,191.50
I
You see on TV that the Mega Millions is up to $2 million! You decide to buy a ticket ......... and you WIN!!! Unfortunately, you do not get that amount right away. Instead, this is the future value of an annuity. Let us examine some choices you have regarding your big win. a) You could choose to collect your winnings today, in the present day. The lottery people could invest this present value and earn 2.7% interest, compounded annually, and have the $2 million in 25 years. How much would they give you today? b) The interest rate in part (a) is very conservative. You have a “friend” who advises you to take the money today and invest it with him, at 6.6% compounded quarterly, for those 25 years. How much would you have in 25 years if you did this? (What is the future value of the amount you computed in part (a)?) c) Otherwise, you could choose to take the annuity. They will pay you nothing in the present day but will pay you A dollars each month for 25 years. Assume 2.7% interest…
Your dreams of becoming rich have just come true. You have won the State of Tranquility's Lottery. The State offers you two payment plans for the$4,000,000 advertised jackpot. You can take annual payments of $160,000 at the end of the year for the next 25 years or $1,864,573 today. b. If your investment rate over the next 25 years is 6%, what is the present value of the $160,000 annual payments today?
You just won a lottery that promises to pay you $1 million exactly 10 years from today. Because the $1 million payment is guaranteed by the state in which you live, opportunities exist to sell the claim today for an immediate lump-sum cash payment. What is the least you will sell your claim for if you could earn 5.05 % on similar-risk investments during the 10-year period?
Congratulations! You have just won a small lottery. Lottery officials give you three alternatives for receiving your winnings: a)$8000 now b)$1000 per year for 12 years c)$15000 in 10 years If you can earn 6.5% on your money, which alternative should you choose?
Find the attached file.
Yang is considering buying an asset that, starting 5 years from now, will pay $10,000 per year forever. Assume that the required return is 7.25%. What is the most Yang should pay for this asset?
You own a one-year European call option to buy one acre of Los Angeles real estate. The exercise price is $2.03 million. Suppose the land is occupied by a warehouse generating rents of $165,000 after real estate taxes and all other out-of-pocket costs. The present value of the land plus the warehouse is $1.73 million. The annual standard deviation is 18% and the interest rate is 11%.How much is your call worth? (Enter your answer in dollars not in millions. Do not round intermediate calculations.)
Suppose an Investor, Erik, is offered the Investment opportunities described in the table below. Each Investment costs $1,000 today and provides a payoff, also described below, one year from now. Option Payoff One Year from Now 1 100% chance of receiving $1,100 2 50% chance of receiving $1,000 50% chance of receiving $1,200 3 50% chance of receiving $200 50% chance of receiving $2,000 If Erik is a risk neutral investor, which investment will he prefer? O Erik will be indifferent toward these options. Erik will choose option 1. Erik will choose option 2. Erik will choose option 3. In contrast, Erik's brother, Devin, is risk averse. Which of the following statements is true about Devin? Everything else remaining constant, Devin will prefer option 1. Everything else remaining constant, Devin will prefer option 2. ○ Everything else remaining constant, Devin will prefer option 3. O None of these options is preferred.
Congratulations!! On a trip to Florida, you have just won the US MegaLottery! Lottery officials offer you the choice of 2 alternative payouts: either $1 million today, or $2 million 6 years from now. Which payout will you choose if the relevant discount rate is 0%? 10%? 20%? Ignore taxes.