subject
Business, 22.06.2019 21:00 kebo63

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 $21 million. you have three options.(a) receive $1.05 million per year for the next 20 years.(b) have $8.25 million today.(c) have $2.25 million today and receive $750,000 for each of the next 20 years. your financial adviser tells you that it is reasonable to expect to earn 13 percent on investments.

Answers

ansver
Answer from: kailey96

The requirement is to calculate the present value of each option:

$ 11.26   million

$11.5 million

$ 12.52 million

Explanation:

The present value formula in excel is very useful in this case:

=-pv(rate,nper,pmt,fv)

rate is the 14% interest rate to be earned per year

nper is duration of the payment

pmt is the amount of payment expected per year

fv is the is the future worth of the payment which is unknown

Option 1:

=-pv(14%,20,1.7,0)=$ 11.26   million

Option 2:

The amount receivable today is the present value i.e $11.5 million

option 3:

=-pv(14%,20,1.4,0)=$9.27   million

total =amount received today+$ 9.27  million=$3.25 million+$ 9.27  millon=$ 12.52 million

Other questions on the subject: Business

image
Business, 21.06.2019 19:30, iajiborode8944
If 1,000 shares of $5 par common stock are reacquired by a corporation for $12 a share, by how much will total stockholders' equity be reduced?
Answers: 1
image
Business, 22.06.2019 09:30, missheyward30
What is the relationship among market segmentation, target markts, and consumer profiles?
Answers: 2
image
Business, 22.06.2019 19:50, sp00ns
What is the present value of the following cash flow stream at a rate of 12.0%? years: 0 1 2 3 4| | | | |cfs: $0 $1,500 $3,000 $4,500 $6,000a. $9,699b. $10,210c. $10,747d. $11,284e. $11,849
Answers: 3
image
Business, 22.06.2019 20:40, mom1645
Which of the following is true concerning the 5/5 lapse rule? a) the 5/5 lapse rule deems that a taxable gift has been made where a power to withdraw in excess of $5,000 or five percent of the trust assets is lapsed by the powerholder. b) the 5/5 lapse rule only comes into play with a single beneficiary trust. c) amounts that lapse under the 5/5 lapse rule qualify for the annual exclusion. d) gifts over the 5/5 lapse rule do not have to be disclosed on a gift tax return.
Answers: 1
You know the right answer?
After hearing a knock at your front door, you are surprised to see the prize patrol from a large, we...

Questions in other subjects:

Konu
Mathematics, 13.11.2020 22:30
Questions on the website: 13535519