Financial And Managerial Accounting
15th Edition
ISBN: 9781337902663
Author: WARREN, Carl S.
Publisher: Cengage Learning,
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Question
Chapter 11, Problem 4TIF
To determine
Identify the payout option that Person A would select.
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Dmitri just won the lottery and must choose between three award options:
1. A lump sum of $20,000,000 received today
2. 15 end-of-year payments of $2,500,000
3. 40 end-of-year payments of $1,800,000
For each option in the table, indicate which values to enter for each variable in your financial calculator.
Option 1
Option 2
Option 3
Lump Sum Payment
15 Payments
40 Payments
No. of Periods
I/YR V
= 15 ▼
I/YR V
= 40
Annual payment
%3D
%3D
Future Value
FV= 0
FV = 0
Present Value
$20,000,000
Assume the interest rate is 8.00%, entered as 8 on your financial calculator.
Note: Take the absolute value of the present value when answering this question.
Using the table you just filled out, along with a financial calculator, yields a present value for option 2 of approximately
and a
present value for option 3 of approximately
(when the interest rate is 8.00%). Based on this, Dmitri should choose option
if he seeks to maximize present value.
A lottery winner will receive
$1
million at the end of each of the next
twelve
years. What is the future value (FV) of her winnings at the time of her final payment, given that the interest rate is
8.1%
per year?
A.
$19.09
million
B.
$30.54
million
C.
$26.73
million
D.
$15.27
million
Lottery 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 $1.000,000 advertised jackpot. You can take annual payments of
$20,000 at the end of the year for the next 50 years or $166,090 today.
a. If your investment rate over the next 50 years is 14%, which payoff will you choose?
b. If your investment rate over the next 50 years is 10%, which payoff will you choose?
c. At what investment rate will the annuity stream of $20.000 be the same as the lump-sum payment of $166.090?
a. If your investment rate over the next 50 years is 14%, what is the present value of the $20,000 annual payments today?
(Round to the nearest dollar.)
Chapter 11 Solutions
Financial And Managerial Accounting
Ch. 11 - Describe the two distinct obligations incurred by...Ch. 11 - Explain the meaning of each of the following terms...Ch. 11 - If you asked your broker to purchase for you a 12%...Ch. 11 - Prob. 4DQCh. 11 - Prob. 5DQCh. 11 - Prob. 6DQCh. 11 - Prob. 7DQCh. 11 - Fleeson Company needs additional funds to purchase...Ch. 11 - Prob. 9DQCh. 11 - Issuing bonds at face amount On January 1, the...
Ch. 11 - Issuing bonds at a discount On the first day of...Ch. 11 - Prob. 3BECh. 11 - Prob. 4BECh. 11 - Prob. 5BECh. 11 - Prob. 6BECh. 11 - Times interest earned Averill Products Inc....Ch. 11 - Prob. 1ECh. 11 - Entries for issuing bonds Thomson Co. produces and...Ch. 11 - Prob. 3ECh. 11 - Prob. 4ECh. 11 - Prob. 5ECh. 11 - Entries for issuing and calling bonds; gain Mia...Ch. 11 - Prob. 7ECh. 11 - Present value of amounts due Assume that you are...Ch. 11 - Prob. 9ECh. 11 - Present value of an annuity On January 1, you win...Ch. 11 - Prob. 11ECh. 11 - Prob. 12ECh. 11 - Prob. 13ECh. 11 - Prob. 14ECh. 11 - Appendix 2 Amortize premium by interest method...Ch. 11 - Prob. 16ECh. 11 - Prob. 17ECh. 11 - Bond discount, entries for bonds payable...Ch. 11 - Prob. 2PACh. 11 - Entries for bonds payable, including bond...Ch. 11 - Appendix 1 and Appendix 2 Bond discount, entries...Ch. 11 - Prob. 5PACh. 11 - Bond discount, entries for bonds payable...Ch. 11 - Prob. 2PBCh. 11 - Entries for bonds payable, including bond...Ch. 11 - Prob. 4PBCh. 11 - Prob. 5PBCh. 11 - Analyze and compare Amazon.com and Wal-Mart...Ch. 11 - Analyze and compare Clorox and Procter Gamble The...Ch. 11 - Prob. 3MADCh. 11 - Analyze and compare Hilton and Marriott Hilton...Ch. 11 - Prob. 1TIFCh. 11 - Prob. 3TIFCh. 11 - Prob. 4TIF
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