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2. Miss Jenny wins a lottery in superball 2021 for $4,000,000. Under the terms she can collect 78% of the entire winnings today or she can collect 1 mil dollars every year for the next 4 years. if the current discount rate is 6% per annum which option she would select. 8 Marks Solution 2 Find the best option for Miss jenny using TVM(time value of money) a) Option 1: take cash $. b) Option 2: Find the present value. (over 4 years) c) Given Future value $ 6 d) Discount rate assumed @6% e) Total Value of winnings @6% discounting for year 1, year 2, year 3, year 4 f) Present value calculation: (use table below) g) Winnings ($4,000,000) 2 1,000,000 3 1,000,000 1,000,000 1,000,000 Year Jenny receives Present value Option 2: Total Present value(PV) after 4 years Option 1 I will select option Few important List of Formulas for guidance: a) Vertical analysis formula = (Statement line item / Total base figure) X 100. Horizontal analysis formula = {(Comparison year amount - Base year amount) / Base year amount} X 100. b) TVM: Conversion Formula Factor Value FV = PV x (1 + i)" Present Value to Future Value Multiply PV by (FIP, i, n) FV PV = (1+i)" Future Value to Present Value Multiply FV by (P/F, I, n) i*(1+i)" A= PV * Present Value to Annual Value (1+i)n - 1 Multiply PV by (A/P, I, n) 1-(1 + i)** PV = A* Annual Value to Present Value i Multiply A by (PIA, I, n) i A = FVG (1 + i)" - 1 Future Value to Annual Value Multiply FV by (A/F, i, n) (1 + i)" - 1 FV = A* i Annual Value to Future Value Multiply A by (FIA, I, n) Ratio Formula Measure of Liquidity and Efficiency Current ratio Current assets Current liabilities Short-term debt-paying ability Add-test ratio Immediate short-term debt-paying ability Accounts recelvable turnover Efficiency of collection Inventory turnover Efficiency of Inventory management Cash + Short-term Investments + Current receivables Current liabilities Net sales Average accounts receivable, net Cost of goods sold Average Inventory Accounts receivable, net X 365 Net sales Ending Inventory X 365 Cost of goods sold Net sales Average total assets Days' sales uncollected Liquidity of receivables Days' sales In Inventory Liquidity of Inventory Total asset turnover Efficiency of assets in producing sales Solvency Debt ratio Creditor financing and leverage Equity ratio Owner financing Total Ilabilities Total assets Total equity Total assets Total labilities Total equity Income before Interest expense and Income taxes Interest expense Debt-to-equity ratio Debt versus equity financing Times Interest earned Protection in meeting Interest payments Profitability Profit margin ratio Net Income in each sales dollar Gross margin ratio Gross margin in each sales dollar Return on total assets Overall profitability of assets Net Income Net sales Net sales - Cost of goods sold Net sales Net Income Average total assets Net Income - Preferred dividends Average common stockholders' equity Shareholders' equity applicable to common shares Number of common shares outstanding Net Income - Preferred dividends Weighted average common shares outstanding Return on common stockholders' equity Profitability of owner Investment Book value per common share Liquidation at reported amounts Basic earnings per share Net Income per common share Market Prospects Price-earnings ratio Market value relative to earnings Market price per common share Earnings per share Annual cash dividends per share Market price per share Dividend yleld Cash return per common share