Morgan Long has just learned he has won a $500,400 prize in the lottery. The lottery has given him two options for receiving the payments. (1) If Morgan takes all the money today, the state and federal governments will deduct taxes at a rate of 48% immediately. (2) Alternatively, the lottery offers Morgan a payout of 20 equal payments of $37,800 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 26%. Click here to view factor tables. Compute the present value of the cash flows for lump sum payout. (Round answer to 0 decimal places, e.g. 458,581.) Lumpsum payout Assuming Morgan 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, eg. 1.25124 and final answer to 0 decimal places, eg 458,581)

Morgan Long has just learned he has won a $500,400 prize in the lottery. The lottery has given him two options for receiving the payments. (1) If Morgan takes all the money today, the state and federal governments will deduct taxes at a rate of 48% immediately. (2) Alternatively, the lottery offers Morgan a payout of 20 equal payments of $37,800 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 26%. Click here to view factor tables. Compute the present value of the cash flows for lump sum payout. (Round answer to 0 decimal places, e.g. 458,581.) Lumpsum payout Assuming Morgan 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, eg. 1.25124 and final answer to 0 decimal places, eg 458,581)

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Bob's Lottery Incorporated has decided to offer winners a choice of $100,000 in 10 years or some amount currently. Assume that Bob's Lottery Incorporated earns a 10 percent after-tax rate of return. What amount should Bob's offer lottery winners currently in order to be indifferent between the two choices? (See Exhibit 3.1) NOTE: Round your answer to the nearest whole dollar amount.
Income from recycling the paper and cardboard generated in an office building has averaged $3000 per month for 3 years. What is the future worth of the income at an interest rate of 8% per year compounded quarterly?
Bella Wans is interested in buying a new motorcycle. She has decided to borrow the money to pay the $25,000 purchase price of the bike. She is in the 33% income tax bracket. She can either borrow the money at an interest rate of 7% from the motorcycle dealer, or she could take out a second mortgage on her home. That mortgage would come with an interest rate of 9%. Interest payments on the mortgage would be tax deductible for Bella, but interest payments on the loan from the motorcycle dealer could not be deducted on Bella's federal tax return. a. Calculate the after-tax cost of borrowing from the motorcycle dealership. b. Calculate the after-tax cost of borrowing through a second mortgage on Bella's home. C. Which source of borrowing is less costly for Bella? d. Should Bella consider any other factors when deciding which loan to take out?
Rob borrowed $5,800 from Richard and signed a contract agreeing to pay it back 10 months later with 4.55% simple interest. After 3 months, Richard sold the contract to Chris at a price that would earn Chris 5.00% simple interest per annum. Calculate the price that Chris paid Richard.
Noor Patel has had a busy year! She decided to take a cross-country adventure. Along the way, she won a new car on The Price Is Right (valued at $14,600) and $500 on a scratch-off lottery ticket (the first time she ever played). She also signed up for a credit card to start the trip and was given a sign-up bonus of $100. How much from these will she have to include in her federal taxable income?
The Wilmoths plan to purchase a house but want to determine the after-tax cost of financing its purchase. Given their projected taxable income, the Wilmoths are in the 24% Federal income tax bracket and the 8% state income tax bracket (i.e., an aggregate marginal tax bracket of 32%). Assume that the Wilmoths will benefit from itemizing their deductions for both Federal and state purposes. The total cash outlay during the first year of ownership will be $23,400 ($1,200 principal payments, $22,200 qualified residence interest payments). If required, round your interim calculation to nearest dollar. As a result, the initial year after-tax cost of financing the purchase of the home will be $fill in the blank 1
Russell bought a new hot tub today from Situation Hot Tubs. What is the present value of the cash flows associated with this transaction if the discount rate is 5.70 percent, he will receive a rebate of $527.00 from Situation Hot Tubs in 1 year, and he will pay $3,973.00 to Situation Hot Tubs in 4 years? Note: the correct answer is less than zero. $-2684.29(plus or minus 10$) $-3681.45(plus or minus 10$) $-2760.68(plus or minus 10$) $-2655.87(plus or minus 10$) None of the above has plus or minus $10 to correct answer
Michel has heard of some Canadians that are millionaires with their TFSA’s. If that were the case and they withdrew $1 million dollars from their TFSA account in 2023, how much tax would they pay on the withdrawn funds if they were in a 53.31% marginal tax bracket? Tax calculation on $1 million TFSA withdrawal:
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…
Renee has two options:(1) She is 25 and her marginal tax rate is 32%. She is planning to invest $5,000 per year into her RRSP until she retires at 65. The money will be invested in a Canadian ETF that is expected to return 10% per year. Assume that she will withdraw her RRSP in one lump sum at 65 and that the marginal tax rate at 65 is 50%. (2) OR Instead of (1), she would use the $5,000 per year to service an interest-only investment loan to create her self-created tax shelter. The rate of interest on the loan is 6%. She will invest the money in the same Canadian ETF that earns 10%. The expected rate of return of 10% on the mutual fund is all capital gains and no dividends. Required :(a) How much money will she have after taxes if she invests in the RRSP? (b) How much money will she have after taxes if she invests in the tax shelter? (c) In (2), if the expected rate of return on the mutual fund is only 6% , how much money after taxes will she have at…
I solved the problem, but please put the information you provided in an excel spreadsheet to get the answers I have please and explain the steps/formula used. 1. John won a $45 million lottery today. The payout is the following: John gets $1.5 million today and $1.5 million each year for the next 29 years. How much money worth today for the lottery assuming John’s federal tax rate is 39.6%, state tax is 8.5% and his annual discount rate is 12%? Annual Discount Rate = 12% Annual Income = 1.5 million Annual Federal Tax = 39.6% * 1.5 million = 0.594 million Annual State Tax = 8.5% * 1.5 million = 0.1275 million Annual Net Income = 1.5 million - 0.594 million - 0.1275 million = 0.7785 million Calculate Total Present Value by using the PVOA Formula. Annuity Factor i = 12% ; time = 29 years ; Factor = 8.0218 PVOA = PMT x Annuity Factor = 0.7785 x 8.0218 = 6.244971 million Total PV = Initial Net Income + PVOA = 0.7785 million + 6.244971 million = 7.02 million
Melody won a $30 million lottery today. The payout is the following: Melody gets $1 million today and $1 million each year for the next 29 years. Suppose that the discount rate is 6%, how much money worth today for the lottery assuming federal tax rate is 25% and state tax is 8%?

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