Morgan Long has just learned he has won a $500,400 prize in the lottery. The lottery has given him two options for receiving the payments. (1) If Morgan takes all the money today, the state and federal governments will deduct taxes at a rate of 48% immediately. (2) Alternatively, the lottery offers Morgan a payout of 20 equal payments of $37,800 with the first payment occurring when Morgan turns in the winning ticket. Morgan will be taxed on each of these payments at a rate of 26%. Click here to view factor tables. Compute the present value of the cash flows for lump sum payout. (Round answer to 0 decimal places, e.g. 458,581.) Lumpsum payout Assuming Morgan can earn an 10% rate of return (compounded annually) on any money invested during this period, compute the present value of the cash flows for annuity payout (Round factor values to 5 decimal places, eg. 1.25124 and final answer to 0 decimal places, eg 458,581)

Morgan Long has just learned he has won a $500,400 prize in the lottery. The lottery has given him two options for receiving the payments. (1) If Morgan takes all the money today, the state and federal governments will deduct taxes at a rate of 48% immediately. (2) Alternatively, the lottery offers Morgan a payout of 20 equal payments of $37,800 with the first payment occurring when Morgan turns in the winning ticket. Morgan will be taxed on each of these payments at a rate of 26%. Click here to view factor tables. Compute the present value of the cash flows for lump sum payout. (Round answer to 0 decimal places, e.g. 458,581.) Lumpsum payout Assuming Morgan can earn an 10% rate of return (compounded annually) on any money invested during this period, compute the present value of the cash flows for annuity payout (Round factor values to 5 decimal places, eg. 1.25124 and final answer to 0 decimal places, eg 458,581)

Financial Accounting: The Impact on Decision Makers

10th Edition

ISBN:9781305654174

Author:Gary A. Porter, Curtis L. Norton

Publisher:Gary A. Porter, Curtis L. Norton

Chapter9: Current Liabilities, Contingencies, And The Time Value Of Money

Section: Chapter Questions

Problem 9.20MCE

See similar textbooks

Similar questions

Play-2-Win is the latest lottery game in your country, and you happen to be the latest winner of $10.5 million. Your government has a guarantee on the funds and will not be paid before 3 years from today. You can however sell your claim today at a rate of 8 percent for a lump sum cash payment. What is the least amount you will sell your claim?
You just won the Powerball lottery that pays after-tax $30,000 per year beginning immediately for the next 20 years. The lottery commission makes you an alternative offer to accept a lump sum of $400,000 today to settle the winning. Assume that the reinvestment rate is 4% per annum. Which of the following statements is correct? A. Accept the offer because you are making $24,018.18 more than investing the annual payments B. Reject the offer because you could make $24,018.18 more by investing the annual payments. C. Accept the offer because you are making $7,709.79 more than investing the annual payments D. Reject the offer because you could make $7,709.79 more by investing the annual payment
Suppose you just won the state lottery, and you have a choice between receiving $3,600,000 today or a 20-year annuity of $250,000, with the first payment coming one year from today. What rate of return is built into the annuity? Disregard taxes. Select the correct answer. a. 1.56% b. 2.46% c. 3.36% d. 4.26% e. 5.16%
You and 11 coworkers just won $1616 million ($1 comma 333 comma 333.331,333,333.33 each) from the state lottery. Assuming you each receive your share over 1717 years and that the state lottery earns a 66 percent return on its funds, what is the present value of your prize before taxes if you request the 'up-front cash' option? Question content area bottom Part 1 Click on the table icon to view the annuity table LOADING... . The present value of your prize before taxes if you request the 'up-front cash' option is $enter your response here. (Round your answer to the nearest dollar.)
You Just won a lottery that promise to pay you 100,000 exactly 10 years from now. Because the 100,000 is guaranteed by the government, opportunities exist to sell the claim today for an immediate single cash payment. a- What is the least you will sell your claim for it you can earn the following rates of retum on similar risk investment during the 10-year period? 1- 5% 2- 8% 3- 11% b- Rework on part a under the assumption that 100,000 payment will be received in 15 years rather than 10 years. c- Explain why you want or do not want to explain you claim.
You have just won the lottery and will receive a lump sum payment of $23.49 million after taxes. Instead of immediately spending your money, you plan to deposit all of the money into an account that will earn 5.53 percent. If you make equal annual withdrawals for the next 35 years, how much can you withdraw each year starting exactly one year from now? Multiple Choice $1.582.896.36 $1,451,563.71 $1,531,835.19 5671142.86 $1,608.426.94
To give you a start, here is something you can compute and discuss among yourselves: Play-2-Win is the latest lottery game in your country, and you happen to be the latest winner of $10.5 million. Your government has a guarantee on the funds and will not be paid before 3 years from today. You can however sell your claim today at a rate of 8 percent for a lump sum cash payment. What is the least amount you will sell your claim? Beginning this year, Mary is planning to save $800 each year for the next six years to take a vacation to commemorate the seventh year of her career. Assuming the interest rate offered by her bank is 9 percent annually, how much will Mary have in the account at the end of seven years? If Mary increases her savings to $1,500 annually, will this be enough to take care of her vacation which is estimated to cost $15,000. Suggested Answers that you should arrive at after computing and discussing. Give the questions a try when you are ready. Question 1:…
24. Comparing Lottery Payouts A lottery winner is given two options: Option I: Receive a $20 million lump-sum payment. Option II: Receive 25 equal annual payments totaling $60 million, with the first payment occurring immediately. If money can earn 6% interest compounded annually dur- ing that long period, which option is better? Hint: With each option, calculate the amount of money earned at the end of 24 years if all of the funds are to be deposited into a savings account as soon as they are received.
Suppose you just won the state lottery, and you have a choice between receiving $2,679,000 today or a 20-year annuity of $261,000, with the first payment coming one year from today. What rate of return is built into the annuity? Disregard taxes. Group of answer choices 8.96% 7.41% 7.82% 8.55% 7.04%
Bob's Lottery Incorporated has decided to offer winners a choice of $100,000 in 10 years or some amount currently. Assume that Bob's Lottery Incorporated earns a 10 percent after-tax rate of return. What amount should Bob's offer lottery winners currently in order to be indifferent between the two choices? (See Exhibit 3.1) NOTE: Round your answer to the nearest whole dollar amount.
Suppose you just won the state lottery, and you have a choice between receiving $2,550,000 today or $270,000 a year for 18 years, with the first payment starting one year from today. What annual interest rate does the second choice provide? 6.75% 7.49% 7.89% 6.28%
Suppose you just won the state lottery, and you have a choice between receiving $2,455,000 today or a 20-year annuity of $230,000, with the first payment coming one year from today. What rate of return is built into the annuity? Disregard taxes. O a. 9.37% O b. 6.57% c. 6.90% d. 7.90% e. 12.57%