Comparison of Alternatives Jane Bauer has won the lottery and has the following
ID: 2718769 • Letter: C
Question
Comparison of Alternatives
Jane Bauer has won the lottery and has the following four options for receiving her winnings:
Receive $95,500 at the beginning of the current year
Receive $102,185 at the end of the year
Receive $20,090 at the end of each year for eight years
Receive $9,730 at the end of each year for 30 years
Jane can invest her winnings at an interest rate of 7% compounded annually at a major bank.
Calculate the Present value for each of the above options. Round all answers to the nearest dollar. Use the appropriate present or future value table that may be found by clicking on the Present & Future Values button.
Which of the payment options should Jane choose?
- Select your answer -Option 1Option 2Option 3Option 4
Explanation / Answer
Option1 Statemnet showing Cash flows Particulars Time PVf@7% Amount PV Cash inflows - 1.0000 95,500.00 95,500.00 PV of Cash Inflows 95,500.00 Option2 Statemnet showing Cash flows Particulars Time PVf@7% Amount PV Cash inflows 1.00 0.9346 102,185.00 95,500.00 PV of Cash Inflows 95,500.00 Option3 Statemnet showing Cash flows Particulars Time PVf@7% Amount PV Cash inflows 1.00 0.9346 20,090.00 18,775.70 Cash inflows 2.00 0.8734 20,090.00 17,547.38 Cash inflows 3.00 0.8163 20,090.00 16,399.42 Cash inflows 4.00 0.7629 20,090.00 15,326.56 Cash inflows 5.00 0.7130 20,090.00 14,323.89 Cash inflows 6.00 0.6663 20,090.00 13,386.82 Cash inflows 7.00 0.6227 20,090.00 12,511.04 Cash inflows 8.00 0.5820 20,090.00 11,692.56 PV of Cash Inflows 119,963.39 Option4 Statemnet showing Cash flows Particulars Time PVf@7% Amount PV Cash inflows 1.00 0.9346 9,730.00 9,093.46 Cash inflows 2.00 0.8734 9,730.00 8,498.56 Cash inflows 3.00 0.8163 9,730.00 7,942.58 Cash inflows 4.00 0.7629 9,730.00 7,422.97 Cash inflows 5.00 0.7130 9,730.00 6,937.36 Cash inflows 6.00 0.6663 9,730.00 6,483.51 Cash inflows 7.00 0.6227 9,730.00 6,059.35 Cash inflows 8.00 0.5820 9,730.00 5,662.95 Cash inflows 9.00 0.5439 9,730.00 5,292.48 Cash inflows 10.00 0.5083 9,730.00 4,946.24 Cash inflows 11.00 0.4751 9,730.00 4,622.65 Cash inflows 12.00 0.4440 9,730.00 4,320.24 Cash inflows 13.00 0.4150 9,730.00 4,037.60 Cash inflows 14.00 0.3878 9,730.00 3,773.46 Cash inflows 15.00 0.3624 9,730.00 3,526.60 Cash inflows 16.00 0.3387 9,730.00 3,295.89 Cash inflows 17.00 0.3166 9,730.00 3,080.27 Cash inflows 18.00 0.2959 9,730.00 2,878.76 Cash inflows 19.00 0.2765 9,730.00 2,690.43 Cash inflows 20.00 0.2584 9,730.00 2,514.42 Cash inflows 21.00 0.2415 9,730.00 2,349.92 Cash inflows 22.00 0.2257 9,730.00 2,196.19 Cash inflows 23.00 0.2109 9,730.00 2,052.51 Cash inflows 24.00 0.1971 9,730.00 1,918.24 Cash inflows 25.00 0.1842 9,730.00 1,792.74 Cash inflows 26.00 0.1722 9,730.00 1,675.46 Cash inflows 27.00 0.1609 9,730.00 1,565.85 Cash inflows 28.00 0.1504 9,730.00 1,463.41 Cash inflows 29.00 0.1406 9,730.00 1,367.68 Cash inflows 30.00 0.1314 9,730.00 1,278.20 PV of Cash Inflows 120,739.97 Option 4 is best
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