After hearing a knock at your front door, you are surprised to see the Prize Pat

Question

After hearing a knock at your front door, you are surprised to see the Prize Patrol from a large, well-known magazine subscription company. It has arrived with the good news that you are the big winner, having won $30 million. You have three options.

Your financial adviser tells you that it is reasonable to expect to earn 13 percent on investments.   

Required:
1. Calculate the present value of each option. (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1.) (Use appropriate factor(s) from the tables provided. Enter your answers in dollars, not in millions.)

    

2. Determine which option you prefer.

(a) Receive $1.5 million per year for the next 20 years. (b) Have $10.5 million today. (c) Have $2.25 million today and receive $1,200,000 for each of the next 20 years.

Explanation / Answer

Present value 1) option A discount pv year amount factor at 13% 1---20     1,500,000.00 7.025     10,537,500.00 option B discount pv year amount factor at 13% now 10,500,000.00 1.000     10,500,000.00 option c discount pv year amount factor at 13% now     2,250,000.00 1.000       2,250,000.00 1---20     1,200,000.00 7.025       8,430,000.00 Net present value     10,680,000.00 2) option c discount factor used here are rounded to three decimal figures,if given in your question table figures are rounded upto five figures than used that figure to get exact answer

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