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 $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, Future 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 your final answer to the nearest whole dollar. Enter your answers in dollars, not in millions. Present Value Option A Option B Option C Show less

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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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 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, Future 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 your final answer to the nearest whole dollar. Enter your
answers in dollars, not in millions.
Present Value
Option A
Option B
Option C
Show less
Transcribed Image Text: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 $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, Future 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 your final answer to the nearest whole dollar. Enter your answers in dollars, not in millions. Present Value Option A Option B Option C Show less
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