Tommy recently won the McDonalds poor faculty benefit lottery for $600,000. Tommy has the option of receiving a lump-sum check for $340,000 or leaving the money in the McDonalds poor faculty benefit fund and receiving an annual year-end check for $60,000 for each of the next 10 years. Tommy likes to (and can) earn at least 11% return (the available interest rate) on his investments.

For your information the following present value factors at 11%

Present Value Present Value of

End of Period of $1 an Annuity of $1

10 0.35218 5.88923

a. What is the present value amount of the lump sum :

b. Please show your calculations and identify the present value of the annuity to be considered:

c. Which choice financially (the lump sum or the annuity) should Tommy select and state why this is the best choice?