**Educational Content on Lottery Payout Options:****Case Study: Mavis Wanczyk's Powerball Jackpot Decision**Mavis Wanczyk, a 53-year-old resident of Chicopee, MA, became the sole winner of the $758.7 million Powerball jackpot on August 23, 2017. It was the largest jackpot prize won on a single ticket in U.S. lottery history. She was presented with two payout options: a one-time lump sum payment of $480,500,936 or an annuity. The annuity option distributes the jackpot over 30 annual payments, which increase by 5% each year to align with the cost of living adjustments. The first payment of the annuity is made immediately, followed by subsequent payments annually. The total (undiscounted) sum of the annuity payments equals the jackpot amount of $758.7 million.**Questions for Consideration:**a. **Annuity Payment Values:** - Calculate the values for the first and last payments of the annuity option. These payments reflect a 5% annual increase starting with the immediate first payment.b. **Present Value Calculation:** - Compute the present value of the annuity payments if Mrs. Wanczyk uses a discount rate of 4%.c. **Factors Influencing Payment Choice:** - Aside from present value, several factors could influence Mrs. Wanczyk's decision between the lump sum and annuity: 1. **Tax Considerations:** Different tax implications for lump sum versus annuity payments. 2. **Financial Needs:** Immediate financial requirements may favor a lump sum. 3. **Investment Opportunities:** Potential for higher returns if the lump sum is invested wisely. Consider how each of these factors might affect her decision between the lump-sum payout and the annuity.

Given: Amount = $7,58,700,000 (758.7 Million) Rate of interest ( i ) = 5% Time ( n ) = 30 annual…

Mavis Wanczyk (53) of Chicopee, MA was the sole winner of the $758.7 million Powerball jackpot on August 23, 2017. It was the largest jackpot prize won on a single ticket in U.S. lottery history. She was given the choice of either receiving a one-time lump sum payment of $480,500,936 upfront or an annuity. The annuity option distributes the jackpot of $758.7 million over 30 annual payments, which increase by 5% each year to keep up with the costs of living. The first payment of the annuity is paid immediately and the subsequent payments are paid at an annual frequency. Thus, the (undiscounted) sum of the annuity payments equals the jackpot amount of $758.7 million. a. What are the values of the first and the last payments of the annuity option? b. Compute the present value of the annuity payments if Mrs. Wanczyk has a discount rate of 4%. c. What considerations besides the present value computed above should Mrs. Wanczyk take into account when deciding between a lump-sum payment and the annuity? Make sure to give at least three reasons. State how these reasons would affect her choice between the lump-sum payment and the annuity.

Mavis Wanczyk (53) of Chicopee, MA was the sole winner of the $758.7 million Powerball jackpot on August 23, 2017. It was the largest jackpot prize won on a single ticket in U.S. lottery history. She was given the choice of either receiving a one-time lump sum payment of $480,500,936 upfront or an annuity. The annuity option distributes the jackpot of $758.7 million over 30 annual payments, which increase by 5% each year to keep up with the costs of living. The first payment of the annuity is paid immediately and the subsequent payments are paid at an annual frequency. Thus, the (undiscounted) sum of the annuity payments equals the jackpot amount of $758.7 million. a. What are the values of the first and the last payments of the annuity option? b. Compute the present value of the annuity payments if Mrs. Wanczyk has a discount rate of 4%. c. What considerations besides the present value computed above should Mrs. Wanczyk take into account when deciding between a lump-sum payment and the annuity? Make sure to give at least three reasons. State how these reasons would affect her choice between the lump-sum payment and the annuity.

Practical Management Science

6th Edition

ISBN:9781337406659

Author:WINSTON, Wayne L.

Publisher:WINSTON, Wayne L.

Chapter2: Introduction To Spreadsheet Modeling

Section: Chapter Questions

Problem 20P: Julie James is opening a lemonade stand. She believes the fixed cost per week of running the stand...

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