Question
2. You just won a Million Dollar lottery and you can choose one of the following two options to claim your winning. If you choose
2. You just won a Million Dollar lottery and you can choose one of the following two options to claim your winning. If you choose Option A, you will receive $40,000 every year for 25 years (40,000 x 25 = $1,000,000 hence the name), with the first payment to occur one year from today. But you may also choose Option B, in which case you will receive a single payment of $600,000 today. The applicable tax rate for the annual payment from Option A is 15%, while the applicable tax rate for the single payment from Option B is 18%. The appropriate discount rate for both options is 5%. Which option is better from a strictly financial standpoint?
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