Question

Just need to know the N, I/YR, PV, PMT, and FV values for each problem to input into financial calculator. Please specify the periods per year and if need to set in Beg or End.

-2 choices when you win lotto: receive $400,000 at the beginning of each year for the next 30 years, or you can receive a lump sum of $6,000,000 now. Your opportunity cost (the rate of return you can earn on any investments you make) is 6 percent per year. Ignoring any tax considerations, which option should you choose? Why?

Answer 1

The answer has been presented in the supporting sheet. All the parts has been solved with detailed explanation and format. For detailed answer refer to the supporting sheet.

A B UE G H Answer 2 3 Parta) 4 Firstly we have to calculate the present value of cash inflows of Both Options 5 7 3 1) Option 1) = annual inflow * ((1-(1+i)^-n)/i) = 400000 * ((1-(1.06)^-30)/.06) = $ 5505932 (rounded off to 0 decimal places) LO Option 2) receive now $ 6000000 Thus we will choose option to receive $6000000 now. This is because on comparing both the options, Options of recieveing $ 6000000 now has more present value, than receiving $ 400000 per year for 30 Years - 3