100 points After hearing a knock at your front door, you are surprised to see th

Question

100 points 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 $27 million. You have three options Receive $1.35 million per year for the next 20 years (b) Have S9.75 million today Have $3.75 million today and receive $1,050,000 for each of the next 20 years. Your financial adviser tells you that it is reasonable to expect to earn 13 percent on investments Required: 1. Calculate the present aue of each option. Future Value of $1. Present Value of S1, Future Value Annuity of S1, Present Value Annuity of $1.) (Use appropriate factor(s) from the tables provided Enter your answers in dollars, not in millions.) Present Value Option B 2. Determine which option you prefer O Option B OOption A OOption C

Explanation / Answer

1) Present Value Option A (1.35*PVIFA @13% 20 years) $7.0247 million (1.35*9.4834) Option B $9.75 million Option C ($3.75+$1.05* PVIFA @ 13% 20 years) $11.126 million (3.75+1.05*7.0247) 2) Option C is preferable because option C has the maximum present value

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