Do a Secure thttpswwwmathulcomStudentPlayertiomework aspoxho

Do a Secure thttps/www.mathul.com/Student/Playertiomework aspox/homeworkld 484301 6648questionld-18flushed-fase& a Secure | Gibson ACC 102-003 Summer 2018 Homework: C26-LO 3 Exercises Score: 0 of 1 pt 12 of X E26-23 (similar to) Congratulationsl You have won a state lottery The state lottery offers you the following (after-tax) payout options EEB (Cick the icon to view the payout options) @Cick the icon to view Present Value of $1 tab e) (Click the icon to view Present Value of Ordinary Annuity of $1 table ) Cick the icon to view Future Value of S1 table) (Cick the icon to view Future Value of Ordinary Annuity of $1 table) Assuming you can earn 10% on your funds, which option would you prefer? The present value of the payout is (Round your answers to the nearest whole dollar.) Option #1 nter any number in the edt fields and then click Check Answer parts remaining

Solution

Answer to Problem E26-23:

Interest Rate = 10%

Option 1:

$11,000,000 after five years

Present Value = $11,000,000 * PV of $1 (10%, 5)
Present Value = $11,000,000 * 0.621
Present Value = $6,831,000

Option 2:

$2,050,000 per year for five years

Present Value = $2,050,000 * PVA of $1 (10%, 5)
Present Value = $2,050,000 * 3.791
Present Value = $7,771,550

Option 3:

$10,000,000 after three years

Present Value = $10,000,000 * PV of $1 (10%, 3)
Present Value = $10,000,000 * 0.751
Present Value = $7,510,000

So, you should prefer Option 2