Joe Mordino bought a ticket in the Georgia lottery for ($ 1), hoping to strike it rich.
Question:
Joe Mordino bought a ticket in the Georgia lottery for \(\$ 1\), hoping to strike it rich. To his amazement, he won \(\$ 4,000,000\). Payment was to be received in equal amounts at the end of each of the next 20 years. Mordino heard from relatives and friends he had not heard from in years. They all wanted to renew their relationship with this new millionaire. Federal and state income taxes were going to be about \(40 \%\) ( \(36 \%\) for federal and \(4 \%\) for state) on each year's
income from the lottery check. The discount rate to use in all present value calculations is \(12 \%\).
a. How much will Mordino actually receive after taxes each year?
b. Is Mordino a multimillionaire according to the present value of his cash inflow after taxes?
c. What is the present value of the net amount the state has to pay out? Remember that the state gets part of the money back in the form of taxes.
Step by Step Answer:
Financial Accounting A Business Perspective
ISBN: 9780072289985
7th Edition
Authors: Roger H. Hermanson, James Don Edwards