After hearing a knock at your front door, you are surprised to see the Prize Patrol from
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 $20 million. You have three options:
(a) Receive $1 million per year for the next 20 years.
(b) Have $8 million today.
(c) Have $2 million today and receive $700,000 for each of the next 20 years.
Your financial adviser tells you that it is reasonable to expect to earn 12 percent on investments.
Required:
1. Calculate the present value of each option.
2. Determine which option you prefer and explain your reasoning.
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Related Book For
Managerial Accounting
ISBN: 978-0078025518
2nd edition
Authors: Stacey Whitecotton, Robert Libby, Fred Phillips
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