Kyle Mayer won the Kentucky State Lottery and will receive the following set of cash flows over

Question:

Kyle Mayer won the Kentucky State Lottery and will receive the following set of cash flows over the next two years: Year 12 2 Cash Flow $20,000 50,000

Kyle can currently earn 6 percent in his money market account, so the appropriate discount rate is 6 percent. The present value of the cash flows is: Year 1 2 Cash Flow X Present Value Factor = Present Value $20,000 x = $18,867.92 1.06 1 1.06 $50,000 x Total In other words, Kyle is indifferent between receiving $63,367.75 today or receiving $20,000 in one year and $50,000 in two years.