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? _________________

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.

jeff jeffy answered 10 months ago

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