1. Steve Long has just learned he has won a $ 514,100 prize in the lottery. The lottery has given him two options for receiving the payments. (1) If Steve takes all the money today, the state and federal governments will deduct taxes at a rate of 46% immediately. (2) Alternatively, the lottery offers Steve a payout of 20 equal payments of $ 37,100 with the first payment occurring when Steve turns in the winning ticket. Steve will be taxed on each of these payments at a rate of 26%.

Click here to view factor tables Compute the present value of the cash flows for lump sum payout. (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 458,581.)

Lump sum payout

$

Assuming Steve can earn an 8% rate of return (compounded annually) on any money invested during this period, compute the present value of the cash flows for annuity payout. (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 458,581.)

Present value of annuity payout

$

Which pay-out option should he choose?

Annuity PayoutLump Sum Payout

2.Splish Corporation, having recently issued a $20,153,400, 15-year bond issue, is committed to make annual sinking fund deposits of $619,400. The deposits are made on the last day of each year and yield a return of 10%. Click here to view factor tables Will the fund at the end of 15 years be sufficient to retire the bonds?

Future value of an ordinary annuity		$enter a dollar amount rounded to 0 decimal places
Will funds be sufficient?		select between Yes and No