3 E11-6 (Algo) Comparing Options Using Present Value Concepts (LO 11-S1) 2 points 03:11:18 After hearing a knock at your front door, you are surprised to see the Prize Patrol from a large, well-known magazine subscription company. It has arrived with the good news that you are the big winner, having won $38 million. You have three options. (a) Receive $1.9 million per year for the next 20 years. (b) Have $12.5 million today. Have $2.5 million today and receive $1,600,000 for each of the next 20 (0) years. Your financial adviser tells you that it is reasonable to expect to earn 12 percent on investments Required: 1. Calculate the present value of each option. (Future Value of $1. Present Value of $1. Future Value Annuity of $1 Present Value Annuity of $1) (Use appropriate factor(s) from the tables provided. Round your final answer to the nearest whole dollar. Enter your answers in dollars, not in millions.) Answer is complete but not entirely correct. Option A Option B Option C $ $ Present Value 14, 191,100 12,500,000 14,450,400 S TABLE 11.1A Future Value of $1 Periods 2% 3% 3.75% 4% 4.25% 5% 6% 7% 8% 0 10000 10000 1 10000 10000 10000 10000 10000 10000 10000 10200 10300 10375 10400 1042510500 10600 10404 1060910764 10816 10868 11025 11236 10700 10800 2 11449 11664 3 10612 10927 11168 11249 11330 11575 11910 12250 1.2597 4 10824 11255 1.1587 11699 11811 12155 1.2625 13108 13605 5 11041 11593 1.2021 12167 12313 12763 13382 1.4026 1.4693 6 11262 11941 12472 12653 12837 1.3401 14185 15007 15869 7 11487 12299 12939 13159 13382 14071 1.5036 16058 17138 8 1.1717 1.2668 13425 1.3686 13951 14775 15938 17182 18509 9 1.1951 13048 13928 1.4233 14544 15513 16895 18385 19990 10 12190 13439 14450 14802 15162 16289 17906 19672 21589 20 14859 18061 20882 2.1911 22989 26533 32071 3.8697 4.6610 Periods 9% 10% 11% 12% 13% 14% 15% 20% 25% O 10000 1 12500 2 10000 10000 10000 10000 10000 10000 1.0000 10000 10900 11000 11100 11200 11300 11400 11500 12000 11881 12100 12321 12544 12769 12996 13225 14400 12950 13310 13676 14049 1.4429 1.4815 1.5209 17280 1.4116 14641 15181 15735 16305 16890 17490 20736 15625 3 1.9531 4 2.4414 5 15386 16105 16851 17623 18424 19254 20114 2.4883 3.0518 6 16771 17716 18704 1.9738 20820 2.1950 2.3131 2.9860 3.8147 7 18280 19487 2.0762 22107 2.3526 25023 2.6600 3.5832 47684 8 19926 21436 23045 2.4760 26584 2.8526 3.0590 4.2998 5.9605 9 2.1719 23579 25580 27731 3.0040 3.2519 3 5179 5.1598 74506 10 23674 25937 28394 3.1058 3.3946 3707240456 6 1917 93132 20 56044 67275 80623 9.6463 115231 137435 16.3665 38 3376 867362 TABLE 11.2A Present Value of $1 Periods 2% 3% 3.75% 4% 4.25% 5% 6% 7% 8% 1 09804 0.9709 0.9639 0.9615 0.9592 0.9524 0.9434 0.9346 0.9259 2 0.9612 0.9426 0.9290 0.9246 0.9201 0.9070 0.8900 0.8734 0.8573 3 4 0.9423 0.9151 0.8954 0.8890 0.8826 0.8638 0.8396 0.8163 0.7938 09238 0.8885 0.8631 0.8548 0.8466 0.8227 07921 0.7629 0.7350 0.9057 0.8626 0.8319 08219 0.8121 07835 07473 0.7130 0.6806 5 6 0.8880 0.8375 0.8018 0.7903 0.7790 0.7462 0.7050 0.6663 0.6302 7 0.8706 0.8131 0.7728 0.759907473 0.7107 0.6651 0.6227 0.5835 8 08535 0.7894 0.7449 07307 0.7168 06768 0.6274 0.5820 0.5403 9 0.8368 0.7664 0.7180 0.7026 0.6876 06446 0.5919 0.5439 0.5002 10 0.8203 0.7441 0.6920 0.6756 0.6595 0.6139 0.5584 0.5083 0.4632 20 0.6730 0.5537 0.4789 0.4564 0.4350 0.3769 0.3118 02584 0.2145 Periods 9% 10% 11% 12% 13% 14% 15% 20% 25% 1 0.9174 0.9091 0.9009 0.8929 0.8850 0.8772 0.8696 0.8333 0.8000 2 0.8417 0.8264 0.8116 0.7972 0.7831 0.7695 0.7561 0.6944 0.6400 3 0.7722 0.7513 07312 0.7118 0.6931 0.6750 0.6575 0.5787 0.5120 4 0.7084 06830 0.6587 0.6355 0.6133 0.5921 0.5718 0.4823 0.4096 5 0.6499 06209 0.5935 0.5674 0.5428 0.5194 0.4972 0.4019 0.3277 6 0.5963 0.5645 0.5346 0.5066 0.4803 0.4556 0.4323 0.3349 0.2621 7 0.5470 0.5132 0.4817 0.4523 0.4251 0.3996 0.3759 0.2791 0.2097 8 0.5019 0.4665 0.4339 0.4039 0.3762 0.3506 0.3269 0.2326 0.1678 9 04604 04241 0.3909 0.3606 0.3329 0.3075 0.2843 0.1938 0.1342 10 0.4224 0.3855 0.3522 0.3220 0 2946 02697 0.2472 0.1615 0.1074 20 0.1784 0.1486 0.1240 0.1037 0.0868 0.0728 0.0611 0.0261 0.0115 TABLE 11.3A Future Value of an Annuity of $1 7% 8% Periods 65 2% 3% 3.75% 4% 4.25% 5% 10000 10000 10000 1 10000 10000 10000 10000 10000 10000 20700 2.0800 2 20200 20300 20600 20375 20400 20425 20500 32464 3.0604 32149 3 3.0909 3.1139 3.1216 31525 3.1836 31293 4 4.1216 42307 43746 4.5061 4.1836 42465 4.2623 4.4399 4 3101 5 5.2040 5.7507 5.3091 5.8666 5.3893 5.4434 5.4163 5.5256 56371 6 6.3061 6.4684 6.5914 6.6330 71533 6.6748 6.9753 6.8019 73359 7 74343 76625 7.8386 8.9228 78983 79585 81420 8.6540 83938 8.5830 8.8923 91326 92142 00 92967 95491 98975 10.2598 10.6366 9 9.7546 10.1591 10.4750 10.5828 106918 110266 12.4876 11.4913 11.9780 10 10.9497 14.4866 11.4639 11 8678 13 8164 12 0061 12.1462 125779 13.1808 20 24.2974 26.8704 29.0174 297781 30.5625 33 0660 367856 40.9955 45.7620 Periods 9% 10% 11% 12% 13% 14% 15% 20% 25% 1 10000 1.0000 10000 1.0000 10000 1.0000 10000 10000 10000 2 20900 2.1000 21100 21200 21300 21400 2 1500 22000 2 2500 3 32781 3.3100 33421 3.3744 3.4069 3.4396 3.4725 36400 3.8125 4 4.5731 4.6410 4.7097 47793 4.8498 4.9211 4.9934 5 3680 5.7656 5 5.9847 6.1051 6.2278 6 3528 6.4803 66101 67424 74416 8 2070 6 75233 77156 7.9129 8.1152 8.3227 8.5355 87537 9.9299 112588 7 9.2004 9.4872 9.7833 10.0890 10.4047 10.7305 11.0668 12.9159 15.0735 00 110285 114359 118594 12 2997 127573 13.2328 137266 164991 19.8419 9 13.0210 13.5975 14.1640 14.7757 15.4157 16.0853 167856 207989 25.8023 10 15 1929 15.9374 167220 17.5487 18.4197 19 3373 20.3037 25.9587 33.2529 20 51.1601 572750 64 2028 720524 80.9468 91.0249 102.4436 186.6880 342.9447 TABLE 11.4A Present Value of Annuity of $1 7% 2% 3% 4.25% 5% 8% Periods 6% 3.75% 1 0.9804 0.9709 0.9639 0.9615 0.9592 0.9524 0.9434 0.9346 09259 2 19416 19135 18929 1.8861 18794 18594 18334 18080 17833 3 2.8839 2.8286 27883 27751 27620 27232 2.6730 26243 25771 3.3121 4 3 8077 3.7171 3.6514 36299 36086 3.5460 34651 33872 5 4.7135 4.5797 4.4833 4.4518 4.4207 4.3295 4.2124 41002 3.9927 6 5.6014 5.4172 5.2851 5.2421 5.1997 50757 49173 47665 4.6229 7 6.4720 62303 60579 60021 5.9470 57864 5.5824 5.3893 5.2064 5.7466 00 73255 70197 6.8028 6.7327 6.6638 6.4632 6.2098 5.9713 9 81622 77861 75208 74353 73513 71078 6.8017 6.5152 6.2469 10 8 2128 8.9826 8.5302 8.1109 8.0109 77217 73601 70236 6.7101 20 16 3514 148775 13.8962 135903 13.2944 12.4622 114699 10.5940 9.8181 Periods 9% 10% 11% 12% 13% 14% 15% 20% 25% 1 0.9174 0.9091 0.90090.8929 0.8550 0.8772 0.8696 0.8333 0.8000 2 17591 17355 17125 16901 16681 16467 16257 15278 1.4400 3 2.5313 2.4869 2.4437 24018 23612 2.3216 22832 21065 1.9520 4 3.2397 31699 3.1024 3.0373 2.9745 2.9137 2.8550 2.5887 2.3616 5 3.8897 37908 36959 3.6048 35172 3.4331 33522 2.9906 26893 4.48594.3553 4.2305 4.1114 3.9975 3.8887 3.7845 33255 2.9514 6 7 5.0330 4.8684 47122 4.5638 4.4226 42883 4.1604 3.6046 3.1611 8 5.5348 5.3349 51461 4.9676 4.7988 4.6389 4.4873 3.8372 3.3289 9 5.9952 5.7590 5.5370 53282 51317 4.9464 47716 4.0310 3.4631 10 6.4177 6.1446 5.8892 56502 54262 5.2161 5.0188 4.1925 3.5705 20 9.1285 8.5136 7.9633 74694 70248 6.6231 6.2593 4.8696 3.9539