Lab Insight: You win the lottery $($yay$)$ and you're trying to decide whether to take the $$4,250,000$ one$-$time lump sum or get $$200,000$ annually for life. Assume you're $25$ years old and expect to live until you're $88.$ What should you do$?$

Required:

$1.$ Determine whether you should take the $$4,250,000$ as a lump sum payment or get $$200,000$ per year for life using net present value $($NPV$)$ and internal rate of return $($IRR$)$ analyses.

Open Excel File Alt Lab $9-1$ Data.xls and browse its contents.

$2.$ Note the differences between Alt Lab $9-1$ and Lab $9-1.$

a$.$ The net present value of cash flows should be evaluated using $3,5,$ and $7$ percent discount rates $($different from the $2,4,$ and $6$ percent used in Lab $9-1).$

b$.$ The annuity is paid from age $25$ to $88($different from the age $86$ in Lab $9-1).$

Ask the Question: Should you take $$4,250,000$ as a lump sum payment or get $$200,000$ per year for life?

Master the Data: Apply the same steps as Lab $9-1$ to the Alt Lab $9-1$ Data.xis dataset.

We'll do two types of analyses, net present value analysis using the Excel NPV$0$ function as well as internal rate of return analysis using IRR. We'll build the spreadsheet together to help perform this analysis.