Exercise 11A-6 Basic Present Value Concepts [LO11-5] The Caldwell Herald newspap
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Question
Exercise 11A-6 Basic Present Value Concepts [LO11-5]
The Caldwell Herald newspaper reported the following story: Frank Ormsby of Caldwell is the state’s newest millionaire. By choosing the six winning numbers on last week’s state lottery, Mr. Ormsby has won the week’s grand prize totaling $1.12 million. The State Lottery Commission has indicated that Mr. Ormsby will receive his prize in 20 annual installments of $56,000 each.
Click here to view Exhibit 11B-1 and Exhibit 11B-2, to determine the appropriate discount factor(s) using tables.
If Mr. Ormsby can invest money at a 8% rate of return, what is the present value of his winnings? (Use the appropriate table to determine the discount factor(s).)
The Caldwell Herald newspaper reported the following story: Frank Ormsby of Caldwell is the state’s newest millionaire. By choosing the six winning numbers on last week’s state lottery, Mr. Ormsby has won the week’s grand prize totaling $1.12 million. The State Lottery Commission has indicated that Mr. Ormsby will receive his prize in 20 annual installments of $56,000 each.
Explanation / Answer
Ans;
NPV = Present Value * Factor Value Year Present Value Factor Value @ 12% NPV A B A*B 1 80000 0.8929 71432 2 80000 0.7972 63776 3 80000 0.7118 56944 4 80000 0.6355 50840 5 80000 0.5674 45392 6 80000 0.5066 40528 7 80000 0.4523 36184 8 80000 0.4039 32312 9 80000 0.3606 28848 10 80000 0.3220 25760 11 80000 0.2875 23000 12 80000 0.2567 20536 13 80000 0.2292 18336 14 80000 0.2046 16368 15 80000 0.1827 14616 16 80000 0.1631 13048 17 80000 0.1456 11648 18 80000 0.1300 10400 19 80000 0.1161 9288 20 80000 0.1037 8296 Total NPV 597552 Hence present value of his winning of 1.6 billion is 597552Related Questions
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