Sb Help Save & ExitSubmit 2 Check my work Problem 5-38 Annuity Due (LO3) The $16

Question

Sb Help Save & ExitSubmit 2 Check my work Problem 5-38 Annuity Due (LO3) The $16.5 million lottery payment that you have just won actualy pays $1 1 milion per year for 15 years. Ther terest rate is 9% o. If the first payment comes in 1 year, what is the present value of the winnings? (Do not round intermediate celculations. Enter your 10 answer in dollers, not millions, rounded to 2 decimal places.) 02at 00, esent value eBook Print b. What is the present value if the first payment comes immediately? (Do not round intermediate calculations. Enter your answer in cdollars, not millions, rounded to 2 decimal ploces) 2 o 16 Next > O Type here to search

Explanation / Answer

1. PRESENT VALUE OF EARNINGS IF THE FIRST PAYMENT COMES IN YEAR 1

Present value = Annual Cash flow * PVIAF(15%,1-15)

= $ 1,100,000 * 5.8474

= $ 6,432,140

2. PRESENT VALUE IF THE FIRST PAYMENT COMES IMMEDIATELY

Present value = Annual Cash flow * PVIAF(15%,0-14)

= $ 1,100,000 * 6.7245

= $ 7,396,950

* PVIAF(15%,1-15) = Present Value Interest Factor Annuity of 15% for 15 years starting from Year1

** PVIAF(15%,0-14) = Present Value Interest Factor Annuity of 15% for 14 years starting from year0

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