The winner of a lottery is given a choice of ($1,000,000) cash today or ($2,000,000) paid out
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The winner of a lottery is given a choice of \($1,000,000\) cash today or \($2,000,000\) paid out as follows: \($100,000\) cash per year for 20 years with the first payment today and 19 subsequent annual payments thereafter. The inflation rate is expected to be constant at 4 percent/year over the award period, and the winner’s TVOM (real interest rate) is 3.5 percent/year.
a. Which choice is better for the winner? Neglect the effect of taxes, life span, and uncertainty.
b. At what value of inflation are the two choices economically equivalent?
c. What would you do if you do NOT neglect the effect of life span and uncertainty?
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Related Book For 
Principles Of Engineering Economic Analysis
ISBN: 9781118163832
6th Edition
Authors: John A. White, Kenneth E. Case, David B. Pratt
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