Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

US Problem 6-4 Your answer is partially correct. Try again. Leon Long has just learned he has won a $502,400 prize in the lottery. The

image text in transcribed
US Problem 6-4 Your answer is partially correct. Try again. Leon Long has just learned he has won a $502,400 prize in the lottery. The lottery has given him two options for receiving the payments. (1) If Leon takes all the money today, the state and federal governments will deduct taxes at a rate of46% immediately, 2 Alternatively, the lottery offers Leon a payout of 20 equal payments of $37,100 with the first payment occurring when Leon turns in the winning ticket. Leon will be taxed on each of these payments at a rate of 25%. 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 7 271296 Assuming Leon can earn an 9% 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 27825 Present value of annuity payout Which pay-out option should he choose

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

The Anxiety Audit

Authors: Lynn Lyons

1st Edition

0757324258, 978-0757324253

More Books

Students also viewed these Accounting questions

Question

What mission applications does the system perform?

Answered: 1 week ago