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 $25 million. You have three options. (a) Receive $1.25 million per year for the next 20 years. (b) Have $9.25 million today (c) Have $3.25 million today and receive $950,000 for each of the next 20 years. Your financial adviser tells you that it is reasonable to expect to earn 14 percent on investments. Required: 1. Calculate the present value of each option. (Future Value of S1. Present Value of $1. Future Value Annuity of S1. Present Value Annuity of S1.) (Use appropriate factor(s) from the tables provided. Enter your answers in dollars, not in millions.) Present Value Option A Option B Option C

Explanation / Answer

Present value Option A 8278875 =1250000*6.6231 Option B 9250000 Option C 9541945 =3250000+(950000*6.6231)

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