Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Howie Long has just learned he has won a $ 5 0 0 , 0 0 0 prize in the lottery. The lottery has given

Howie Long has just learned he has won a $500,000 prize in the lottery. The lottery has given him two options for receiving the payments. (1) If Howie takes all the money today, the state and federal governments will deduct taxes at a rate of 46% immediately. (2) Alternatively, the lottery offers Howie a payout of 20 equal payments of $36,000 with the first payment occurring when Howie turns in the winning ticket. Howie will be taxed on each of these payments at a rate 25%.
Instructions
Assuming Howie can earn an 8% rate of return (compounded annually) on any money invested during this period, which payout option should he choose?
NOTE: Enter a formula, a cell reference, or a value (if you are unable to reference a cell), into the yellow shaded input cells.
Lump sum alternative
Annuity alternative
Which payout should Howie select?
image text in transcribed

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Managerial Accounting For Undergraduates

Authors: James Wallace, Scott Hobson, Theodore Christensen

2nd Edition

1618533096, 9781618533098

More Books

Students also viewed these Accounting questions