Question
You just won the Power Ball Lottery worth $50,000,000. Upon reading the fine print you learn, that you have two options: Option A: take the
You just won the Power Ball Lottery worth $50,000,000. Upon reading the fine print you learn, that you have two options:
Option A: take the cash value of $30 million today (before taxes)
Option B: The winner is guaranteed to receive 30 graduated payments over 29 years; the first payment is made today. These payments will increase by 2% per year until the final payment. The first payment, received today, equals $1,500,000.
Assuming a required rate of return of 4%, calculate the present value of option B.
Step by Step Solution
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Step: 1
To calculate the present value of option B we need to find the present value of each of the 30 gradu...
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Financial Accounting Tools for Business Decision Making
Authors: Paul D. Kimmel, Jerry J. Weygandt, Donald E. Kieso, Barbara Trenholm, Wayne Irvine
6th Canadian edition
1118644948, 978-1118805084, 1118805089, 978-1118644942
