Its your lucky day! You just won the $10 million lotto jackpot. You have two options for receiving the payout. You could take a lump sum payout of $5 million which would incur taxes of 35%. Or, you could elect to have it paid out over twenty years at $500,000 per year. You would be subject to a lower tax rate of 25% on each of those distributions. For this decision you decide that 8% would be the appropriate discount rate to use. Which option would be the best financial decision to make? (Hint: Compare the present value of both alternatives).

A. The lump sum payout provides $245,875 more PV than the 20-year payout option. Choose the lump sum payout option.

B. The twenty-year payout provides $431,805 more PV than the lump sum. Choose the 20-year payout option.

C. Both options have the same PV, so you should be indifferent as to which one to choose.

D. Because the lump sum payout occurs at time zero, it will always have a higher PV than the 20-year payout. So, always choose the lump sum.