None After hearing a knock at your front door, you are surprised to see the Prize Patrol from a large, well-known magazine subscriptioncompany. It has arrived with the good news that you are the big winner, having won $31 million. You have three options:a. Receive $1.55 million per year for the next 20 years.b. Have $10.75 million today.c. Have $2.5 million today and receive $1,250,000 for each of the next 20 years.Your financial adviser tells you that it is reasonable to expect to earn 14 percent on investments.Required:1. Calculate the present value of each option. (Future Value of $1,Present Value of $1. Euture Value Annuity of $1. Present ValueAnnuity of $1.)2. Determine which option you prefer.Complete this question by entering your answers in the tabs below.Required 1 Required 2Calculate the present value of each option. (Future Value of $1,Present Value of $1, Future Value Annuity of $1,Present Value Annuity of $1.)Note: Use appropriate factor(s) from the tables provided. Round your final answer to the nearest whole dollar. Enter youranswers in dollars, not in millions.Show less A

To calculate the present value of each option, we need to use the appropriate formulas and factors…

Answered: After hearing a knock at your front…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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After hearing a knock at your front door, you are surprised to see the Prize Patrol from a large,well-known magazine subscription company. It has arrived with the good news that you are the bigwinner, having won “$20 million.” You discover that you have three options: (1) you can receive$1 million per year for the next 20 years, (2) you can have $8 million today, or (3) you can have $2million today and receive $700,000 for each of the next 20 years. Your financial adviser tells youthat it is reasonable to expect to earn 10 percent on investments. Which option do you prefer? Whatfactors influence your decision?TIP: All three scenarios require you to determine today’s value of the various payment options.These are present value problems.
After hearing a knock at your front door, you are surprised to see the Prize Patrol from a large, well-known magazine subscription company. It has arrived with the good news that you are the big winner, having won $24 million. You have three options: a. Receive $1.2 million per year for the next 20 years. b. Have $9 million today. c. Have $3 million today and receive $900,000 for each of the next 20 years. Your financial adviser tells you that it is reasonable to expect to earn 13 percent on investments. Required: 1. Calculate the present value of each option. (Euture Value of $1.Present Value of $1. Euture Value Annuity of $1. Present Value Annuity of $1.) 2. Determine which option you prefer. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Calculate the present value of each option. (Future Value of $1,Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1.) Note: Use appropriate factor(s) from the tables provided. Round…
After hearing a knock at your front door, you are surprised to see the Prize Patrol from a large, well-known magazine subscription company. It has arrived with the good news that you are the big winner, having won $35 million. You have three options: Receive $1.75 million per year for the next 20 years. Have $11.75 million today. Have $3.5 million today and receive $1,450,000 for each of the next 20 years. Your financial adviser tells you that it is reasonable to expect to earn 12 percent on investments. Calculate the present value of each option.
After hearing a knock at your front door, you are surprised to see the Prize Patrol from your state's online lottery agency. Upon opening your door, you learn you have won the lottery of $12.5 million. You discover that you have three options: (1) you can receive $1.25 million per year for the next 10 years, (2) you can have $10 million today, or (3) you can have $4 million today and receive $1 million for each of the next eight years. Your lawyer tells you that it is reasonable to expect to earn an annual return of 10 percent on investments. Required: 1. What is the present value of the above options? (FV of $1, PV of $1, FVA of $1, and PVA of $1) Note: Use appropriate factor(s) from the tables provided. 2. Which option do you prefer? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 2 above options? What is the present Note: Enter your answers in whole dollar not in millions (i.e., 1,000,000 not 1.0), rounded to nearest whole dollar.…
Congratulations. You have just won first prize in a quantitative competition. You have the following choices to receive your winnings: Option I: Receive $3,000,000 immediately. Option II: Receive five $1,000,000 payments paid every other year beginning in year T=2. For example, you receive a $1 million dollars payment in year T=2, T=4, T=6, T=8, and T=10. a. What is the present value of each option if R=0.06? Which option would you choose? b. What is the present value of each option if R=0.12? Which option would you choose? c. What interest rate R will make the present value of both options equal? Hint: use Excel’s Data – What If - Goal Seek analysis.
Congratulations. You have just won first prize in a quantitative competition. You have the following choices to receive your winnings: Option I: Receive $3,000,000 immediately. Option II: Receive five $1,000,000 payments paid every other year beginning in year T=2. For example, you receive a $1 million dollars payment in year T=2, T=4, T=6, T=8, and T=10. a. What is the present value of each option if R=0.06? Which option would you choose? b. What is the present value of each option if R=0.12? Which option would you choose? c. What interest rate R will make the present value of both options equal? Hint: use Excel's Data - What If - Goal Seek analysis Show what you do to se up goal seek for c Also take snap shots from excel and how did you get the answers, please show work for c!!!
Congratulations. You have just won first prize in a quantitative competition. You have the following choices to receive your winnings: Option I: Receive $3,000,000 immediately. Option II: Receive five $1,000,000 payments paid every other year beginning in year T=2. For example, you receive a $1 million dollars payment in year T=2, T=4, T=6, T=8, and T=10. a. What is the present value of each option if R=0.06? Which option would you choose? b. What is the present value of each option if R=0.12? Which option would you choose? c. What interest rate R will make the present value of both options equal? Hint: use Excel’s Data – What If - Goal Seek analysis Show what you do to se up goal seek for c
Congratulations! You have just won the lottery! However, the lottery bureau has just informed you that you can take your winnings in one of two ways. You can Select to receive a payment of $1,000,000 now or a payment of $1,750,000 in five years. Assume you can earn 5% on funds that you invest today. How much money would you have in five years if you take the immediate $1,000,000 payment and invest it? What does this tell you about the wisdom of selecting the immediate payment versus the future payment? Using the same 5% interest rate, what is the present value of the $1,750,000 that you could receive in five years? What does this calculation tell you about which lottery payout option you should choose? What do your results suggest as a general rule for approaching such problems? (Make your choices based purely on the time value of money.
A lottery corporation sells a ticket for a chance to win $500,000. If you win, the prize winnings will be spread out over time with your first payment of $150,000 today. The second payment of $ 150,000 would be released to you in a year, and the last payment of $200,000 would be released the following year. If you could earn 3.5% compounded annually, what is the value of the prize today?
After completing a long and successful career as senior vice president for a large bank, you are preparing for retirement. After visiting the human resources office, you found that you have several retirement options to choose from: An immediate cash payment of $1.11 million. Payment of $53,000 per year for life. Payment of $43,000 per year for the first 3 years and then $63,000 per year for the remainder of your life (this option is intended to give you some protection against inflation). You believe you can earn 7 percent on your investments, and your remaining life expectancy is 6 years. Required: Calculate the present value of each option. (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1.) Determine which option you prefer.
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$4,000,000 advertised jackpot. You can take annual payments of $160,000 at the end of the year for the next 25 years or $1,864,573 today. b. If your investment rate over the next 25 years is 6%, what is the present value of the $160,000 annual payments today?
After completing a long and successful career as senior vice president for a large bank, you arepreparing for retirement. After visiting the human resources office, you have found that you haveseveral retirement options: (1) you can receive an immediate cash payment of $1 million, (2) youcan receive $60,000 per year for life (your remaining life expectancy is 20 years), or (3) you canreceive $50,000 per year for 10 years and then $70,000 per year for life (this option is intended togive you some protection against inflation). You have determined that you can earn 8 percent onyour investments. Which option do you prefer and why?

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