practice questions

5 Terry O'Malley just won a lottery worth $900,000. He will collect the money in one of two ways. He has to chose. You are asked to calculate which option is best and give Terry your advice. Assume Terry can earn 8% on the money if he had it now. (hint, that is a good discount rate, use 8%) Option 1) Terry takes the entire $900,000 today, but he will pay an immediate 46% income tax. Option 2) Terry can chose to receive $62,000 equal payments. The first would be received today, and the remaining 19 payments yearly. Terry will be taxed on these payments at a 25% tax rate