You have recently won the super jackpot in the Washington State Lottery. On reading the fine print, you discover that you have the following two options: a. You will receive 31 annual payments of $250,000, with the first payment being delivered today. The income will be taxed at a rate of 28 percent. Taxes will be withheld when the checks are issued. b. You will receive $530,000 now, and you will not have to pay taxes on this amount. In addition, beginning one year from today, you will receive $200,000 each year for 30 years. The cash flows from this annuity will be taxed at 28 percent. Using a discount rate of 7 percent, which option should you select?
You have recently won the super jackpot in the Washington State Lottery. On reading the fine print, you discover that you have the following two options: a. You will receive 31 annual payments of $250,000, with the first payment being delivered today. The income will be taxed at a rate of 28 percent. Taxes will be withheld when the checks are issued. b. You will receive $530,000 now, and you will not have to pay taxes on this amount. In addition, beginning one year from today, you will receive $200,000 each year for 30 years. The cash flows from this annuity will be taxed at 28 percent. Using a discount rate of 7 percent, which option should you select?
Practical Management Science
6th Edition
ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:WINSTON, Wayne L.
Chapter2: Introduction To Spreadsheet Modeling
Section: Chapter Questions
Problem 20P: Julie James is opening a lemonade stand. She believes the fixed cost per week of running the stand...
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Question
You have recently won the super jackpot in the Washington
State Lottery. On reading the fine print, you discover that you have the following two
options:
a. You will receive 31 annual payments of $250,000, with the first payment being
delivered today. The income will be taxed at a rate of 28 percent. Taxes will be
withheld when the checks are issued.
b. You will receive $530,000 now, and you will not have to pay taxes on this amount.
In addition, beginning one year from today, you will receive $200,000 each year
for 30 years. The cash flows from this annuity will be taxed at 28 percent.
Using a discount rate of 7 percent, which option should you select?
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