Exercise 12A-6 Basic Present Value Concepts [LO12-7]

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 won the weeks grand prize totaling $1.26 million. The State Lottery Commission indicated that Mr. Ormsby will receive his prize in 20 annual installments of $63,000 each.

Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using tables.

Required:

1. If Mr. Ormsby can invest money at a 12% rate of return, what is the present value of his winnings? (Enter your answer in dollars and not in millions of dollars.)