Imagine you have a winning lottery ticket that states that you have the option o

Question

Imagine you have a winning lottery ticket that states that you have the option of taking $10,000 three years from now (three periods) or taking the present value of the winnings now. The state uses an 8% rate of discounting. If you take the winnings now, how much would you receive? A) $25,771.00 B) $12,597.10 C) $7,938.30 D) $7,950.00 University just signed a capital lease contract for new equipment that requires rental payments of $6,000 each, to be paid at the end of the next 5 years. The appropriate discount rate is 12%, what is the present value of the rental payments? A) $53,179.50 B) $38,117.10 C) $36,000.00 D) $21,628.68

Explanation / Answer

Answer:-

(1)

Answer :- A) :- $25,771.00

Present Value :- ($10,,000 / 1.08) + {($10,000 / (1.08)2} + {($10,000 / (1.08)3}

:- $25,771.00

So, If Win Now than I Will Receive $25,771.00

(2)

Answer :- D) :- $21,628.68

Present Value of rental payments :- (1/1.12) + (1/1.12)2 + (1/1.12)3 + (1/1.12)4 + (1/1.12)5 * $6,000

:- 3.6048 * 6,000

:- $21,628.68

So, Present Value of Rental Payment is $21,628.68

  

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