You are a CPA, and you have a client who has just won a $10,000,000 lottery. The client is not financially experienced and comes to you for advice. He has the option of receiving the winnings annually for 30 years or taking a lump sum payout discounted at 6% (this is not a one-time discount - it is the market rate used to calculate the PV of the annuity ). In order to advise him, you must consider his relative inexperience with managing large sums of money and other factors as well. You research other lottery winners so you can give your client some "worst-case" examples. You calculate the best financial deal for him but recognize that this is both a quantitative and qualitative decision. What additional questions would you ask your client? What advice would you give your client?
You are a CPA, and you have a client who has just won a $10,000,000 lottery. The client is not financially experienced and comes to you for advice. He has the option of receiving the winnings annually for 30 years or taking a lump sum payout discounted at 6% (this is not a one-time discount - it is the market rate used to calculate the PV of the annuity ). In order to advise him, you must consider his relative inexperience with managing large sums of money and other factors as well. You research other lottery winners so you can give your client some "worst-case" examples. You calculate the best financial deal for him but recognize that this is both a quantitative and qualitative decision. What additional questions would you ask your client? What advice would you give your client?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:You are a CPA, and you have a client who has just won a $10,000,000 lottery. The client is not financially experienced
and comes to you for advice. He has the option of receiving the winnings annually for 30 years or taking a lump sum
payout discounted at 6% (this is not a one-time discount - it is the market rate used to calculate the PV of the annuity
). In order to advise him, you must consider his relative inexperience with managing large sums of money and other
factors as well. You research other lottery winners so you can give your client some "worst-case" examples. You calculate
the best financial deal for him but recognize that this is both a quantitative and qualitative decision.
What additional questions would you ask your client? What advice would you give your client?
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