1. The cash flows of an investment are as follows: Year Cash flows 1 -50,000 2 30,000 3 20,000 4 10,000 a. What is the IRR of the investment? b. What is the profitability ratio?

2. The winner of a $1,000,000 state lottery has two options: (a) receive a lump sum immediately, or (b) receive a 20-year annuity of $50,000 per year starting next year. The current interest rate is 10 percent per year. If the winner chooses option (a), what is the fair amount of the lump sum?