Question
NewmanLong has just learned he has won a $511,300prize in the lottery. The lottery has given him two options for receiving the payments. (1) IfNewmantakes
NewmanLong has just learned he has won a $511,300prize in the lottery. The lottery has given him two options for receiving the payments. (1) IfNewmantakes all the money today, the state and federal governments will deduct taxes at a rate of48% immediately. (2) Alternatively, the lottery offersNewmana payout of20equal payments of $37,100with the first payment occurring whenNewmanturns in the winning ticket.Newmanwill be taxed on each of these payments at a rate of26%.
Compute the present value of the cash flows for lump sum payout.(Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 458,581.)
Lump sum payout$?
AssumingNewmancan earn an9% rate of return (compounded annually) on any money invested during this period, compute the present value of the cash flows for annuity payout.(Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 458,581.)
Present value of annuity payout$?
Which pay-out option should he choose?
Annuity PayoutLump Sum Payout
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