You are the beneficiary of a life insurance policy. The insurance company informs you that you have two options for receiving the insurance proceeds. You can receive a lump sum of $200,000 today or receive payments of $17,000 a year for 20 years. You can earn a 6-percent annual rate on your money. Which option should you take and why?

1. You should accept the $200,000 lump sum because the annual payments are only worth $5,301 to you today.
2. You should accept the $200,000 lump sum because the annual payments are only worth $19,499 to you today.
3. You should accept the $200,000 lump sum because the annual payments are only worth $194,989 to you today.
4. You should accept the annual payments because they are worth $2,293,984 to you.
5. You should accept the annual payments because they are worth $211,858 to you.

Assume it is now January 1, 2020, and you have received the following four-year forecast for Rockness Company. Assume an income tax rate = 40%.

	($ millions) for the years ending December 31,
	2020	2021	2022	2023
Revenues	$ 460	$ 599	$ 781	$ 963
Operating expenses (excluding depreciation)	172	201	251	253
Annual investment in new fixed assets	345	207	230	230
Additional investment (recovery of) net working capital	46	115	(23)	10
Depreciation expense	58	98	140	230

What is the projected free cash flow for years 2020-2023?

	2020	2021	2022	2023
a) Free cash flow	$ 138	$ 180	$ 234	$ 288
	2020	2021	2022	2023
b) Free cash flow	$ 230	$ 300	$ 390	$ 480

	2020		2021		2022		2023
c) Free cash flow	$ (195)		$ (44)		$ 167		$ 278
		2020		2021		2022		2023
d) Free cash flow		$ (253)		$ (142)		$ 27		$ 48