Exercise 11A-6 Basic Present Value Concepts [LO11-5]

The Caldwell Herald newspaper reported the following story: Frank Ormsby of Caldwell is the states newest millionaire. By choosing the six winning numbers on last weeks state lottery, Mr. Ormsby has won the weeks grand prize totaling $1.12 million. The State Lottery Commission has indicated that Mr. Ormsby will receive his prize in 20 annual installments of $56,000 each.

Click here to view Exhibit 11B-1 and Exhibit 11B-2, to determine the appropriate discount factor(s) using tables.

Required:
1.	If Mr. Ormsby can invest money at a 8% rate of return, what is the present value of his winnings? (Use the appropriate table to determine the discount factor(s).)