You have just won the lottery. At the end of each of the next 30 years, you will received a payment of certain amount. The first payment is $50,000, and the annual payments increase by 5%. Each year you need to pay tax on your winnings. Assume the federal tax rate is 20%, state tax rate 8%, and the cost of capital is 10% per year, what is the present value of your net lottery winnings? Assume each year your lottery payment and your tax payment occur at the time. Partial structure is given as below. First Payment 50,000 Payment Increase Nper 30 Federal Tax Rate 0.2 State Tax Rate 0.08 Cost of Capital 0.1 Year Payment Federal Tax State Tax Total Tax Net Payment 50,000 2 3 4 5
You have just won the lottery. At the end of each of the next 30 years, you will received a payment of certain amount. The first payment is $50,000, and the annual payments increase by 5%. Each year you need to pay tax on your winnings. Assume the federal tax rate is 20%, state tax rate 8%, and the cost of capital is 10% per year, what is the present value of your net lottery winnings? Assume each year your lottery payment and your tax payment occur at the time. Partial structure is given as below. First Payment 50,000 Payment Increase Nper 30 Federal Tax Rate 0.2 State Tax Rate 0.08 Cost of Capital 0.1 Year Payment Federal Tax State Tax Total Tax Net Payment 50,000 2 3 4 5
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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Transcribed Image Text:You have just won the lottery. At the end of each of the next 30 years, you will received a payment of certain amount. The first payment is $50,000, and the annual payments increase by 5%.
Each year you need to pay tax on your winnings. Assume the federal tax rate is 20%, state tax rate 8%, and the cost of capital is 10% per year, what is the present value of your net lottery winnings?
Assume each year your lottery payment and your tax payment occur at the time.
Partial structure is given as below.
First Payment
50,000
Payment Increase
Nper
30
Federal Tax Rate
0.2
State Tax Rate
0.08
Cost of Capital
0.1
Year
Payment
Federal Tax State Tax
Total Tax Net Payment
50,000
2
3
4
5
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