Sat Jul 7 12448 PMoaO Return to elp I Svstem Announcements Y

Sat Jul 7 1:24:48 PMoaO Return to elp I Svstem Announcements Your anower is partialily correct. Try again Chuck has Just won the lybal Lovery. He has two options for receliving his prie. The fest s to accept a $134,000 The second option is to at the end of each of the next 15 years and a $39,100 lump sum payment in the 16th year. Chuck can invest money at a 7s ane (a) Cacstate me present vah\" or the tw?wws. (rar a kalation Arpeses use 4 decima. Place. a. displaye-in the r table previded and round final 13000 which option should Chuck choose to receive his winnings? (b) Ir Chuck could invest money 10%, calculate the pesent vatn ar-two oeoons. Oor calatanian purposes, ame 4 acoarames seinerea m me none table provided and reund final answer to o decimaí place, e.g. 58,971 Option 1 Option 2 Present value wnich option should he MacBook Pro 3 4 5 8

Solution

Option 1 Option 2 Cash to be received Today 134000 Cash at end of each year for 15 years 21000 Plus: Lumpsum at end of 16th year 39100 Option 1 Option 2 A Present Value of Each option 134000 2,04,511 (Cash received today) He should choose Option 2 Calculation of Present Value for Option 2: Year Cash Flow Discount Factor at 7% Present Value 1 21000 0.93 19,626 2 21000 0.87 18,342 3 21000 0.82 17,142 4 21000 0.76 16,021 5 21000 0.71 14,973 6 21000 0.67 13,993 7 21000 0.62 13,078 8 21000 0.58 12,222 9 21000 0.54 11,423 10 21000 0.51 10,675 11 21000 0.48 9,977 12 21000 0.44 9,324 13 21000 0.41 8,714 14 21000 0.39 8,144 15 21000 0.36 7,611 16 39100 0.34 13,245 2,04,511 Option 1 Option 2 B Present Value of Each option 134000 1,68,237 (Cash received today) Still, He should choose Option 2 Calculation of Present Value for Option 2: Year Cash Flow Discount Factor at 10% Present Value 1 21000 0.91 19,091 2 21000 0.83 17,355 3 21000 0.75 15,778 4 21000 0.68 14,343 5 21000 0.62 13,039 6 21000 0.56 11,854 7 21000 0.51 10,776 8 21000 0.47 9,797 9 21000 0.42 8,906 10 21000 0.39 8,096 11 21000 0.35 7,360 12 21000 0.32 6,691 13 21000 0.29 6,083 14 21000 0.26 5,530 15 21000 0.24 5,027 16 39100 0.22 8,509 1,68,237