Question

In: Finance

Congratulations, you have won $1,000,000 in Mass Lottery. Our displeasure is to announce that after taxes...

Congratulations, you have won $1,000,000 in Mass Lottery. Our displeasure is to announce that after taxes your winning is $500,000 (use 10% annual rate) a. How would you like that? b. One lump sum today? c. In 10 annual installments of $50,000? d. In 20 semi-annual installments of $12,500? e. Or, $500,000 in 10 years? Please provide your calculation (on Excel) for each of the options using PV calculations: So, what option do you choose now and why? _________________

Solutions

Expert Solution

I will choose the option: One lump sum today

By deferring the payment I am losing on the present value of the money. Please see the excel calculations below:

One lump sum payment NPV = $ 500,000

Fort the NPVs under other schemes, please see the table below: The last row highlighted in yellow is your answer. Figures in parenthesis, if any, mean negative values. All financials are in $. Adjacent cells in blue contain the formula in excel I have used to get the final output.


Related Solutions

Congratulations! You have just won $1,000,000 in the New York Lottery. You will receive payments of...
Congratulations! You have just won $1,000,000 in the New York Lottery. You will receive payments of $40,000 per year (at the end of each year) for the next 25 years. If the discount rate is 14 percent, what are your winnings worth today?
Congratulations! You have just won the State Lottery. The lottery prize was advertised as an annualized...
Congratulations! You have just won the State Lottery. The lottery prize was advertised as an annualized $105 million paid out in 30 equal annual payments beginning immediately. The annual payment is determined by dividing the advertised prize by the number of payments. Instead you could take a one lump cash prize of the present value of all the annuity payments using a 4.5% discount rate. You now have up to 60 days to determine whether to take the cash prize...
Congratulations, you have won the California State Lottery. Lottery officials are giving you a choice of...
Congratulations, you have won the California State Lottery. Lottery officials are giving you a choice of payment options. You will need to choose from one of the following streams. Assume at 5% interest rate for all scenarios. Option 1 Immediate payment of $1,000,000 Option 2 10 annual installments of $120,000 Option 3 $2,650,000 paid at the end of 20 years Option 4 20 annual installments of $80,000 Option 5 5 annual installments of $100,000 plus a lump sum of $750,000...
You have just won the $1,000,000 in the lottery. You have the option of taking a...
You have just won the $1,000,000 in the lottery. You have the option of taking a lump sum payout or equal annualized payments over 20 years. Ignoring any tax consequences; how much should you expect from the annualized payments. What target interest rate would make the annualized payments more valuable than the lump sum. In your response, you may want to consider such issues as inflation, investing lump sum in stock market (What have been the long-term historic returns?) to...
(a) You have won a lottery worth $1,000,000. The amount will be paid to you in...
(a) You have won a lottery worth $1,000,000. The amount will be paid to you in equal installments over 20 years. If the interest rate is 10% compounded annually, how much will you be paid at the end of each year? (b) You have just joined the investment banking firm of Mckenzie & Co. They have offered you two different salary arrangements. You can have $75,000 per year for the next two years, or you can have $55,000 per year...
Congratulations! You have won the $ 1 million lottery grand prize. You have been presented with...
Congratulations! You have won the $ 1 million lottery grand prize. You have been presented with several payout alternatives, and you have to decide which one to accept.                                 The alternatives are as follows:             $1 million today             $1.2 million lump- sum in two years.             $1.5 million lump-sum in five years.             $2 million lump-sum in eight years. Your cousin, s stockbroker, advises you that over the long-term you should be able to earn ten percent on an investment portfolio. You are intrigued...
You just won $1,000,000 in the lottery. This lottery will pay you $1 a year for...
You just won $1,000,000 in the lottery. This lottery will pay you $1 a year for a million years. Using a martket discount rate of 5% compound annually, what is the current value of this prize? $20 $67 $24.67 $16.66 $12
Time Value of Money COLLAPSE You have just won the $1,000,000 in the lottery. You have...
Time Value of Money COLLAPSE You have just won the $1,000,000 in the lottery. You have the option of taking a lump sum payout or equal annualized payments over 20 years. Ignoring any tax consequences; how much should you expect from the annualized payments. What target interest rate would make the annualized payments more valuable than the lump sum. In your response, you may want to consider such issues as inflation, investing lump sum in stock market (What have been...
3. Congratulations, you just won the lottery! In one option presented to you, you will be...
3. Congratulations, you just won the lottery! In one option presented to you, you will be paid one million dollars a year for the next 25 years. You can deposit this money in an account that will earn 5% each year. (a) Let M(t) be the amount of money in the account (measured in millions of dollars) at time t (measured in years). Set up a differential equation that describes the rate of change in the amount of money in...
You have just won $1,000,000 in the Tennessee Lottery. You will receive payments of $40,000 per...
You have just won $1,000,000 in the Tennessee Lottery. You will receive payments of $40,000 per year (at the end of each year) for the next 25 years. If the discount rate is 8 percent, what are your winnings worth today? How would I input this information using a financial calculator?
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT