Question
Your poor Managerial Accounting instructor recently won the poor faculty benefit lottery for $1,000,000. Professor has the option of receiving a lump-sum check for $350,000
Your poor Managerial Accounting instructor recently won the poor faculty benefit lottery for $1,000,000. Professor has the option of receiving a lump-sum check for $350,000 or leaving the money in the poor faculty benefit fund and receiving an annual year-end check for $32,000 for each of the next 20 years. Professor likes to (and can) earn at least 7% return on his investments.
For your information the following present value factors at 7%
Present Value Present Value of
End of Period of $1 an Annuity of $1
20 0.258 10.594
a. What is the present value amount of the lump sum (be careful not to over-think this) (3 points):
b. Please show your calculations and identify the present value of the annuity to be considered
(4 points):
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