16 john wins the lottery and has the following three payout options for after tax pr 4306778

16 john wins the lottery and has the following three payout options for after tax pr 4306778

16) John wins the lottery and has the following three payout options for after-tax prize money:

1. $150,000 per year at the end of each of the next six years

2. $300,000 (lump sum) now

3. $500,000 (lump sum) six years from now

The required rate of return is 9%. What is the present value if he selects the second option? Round to nearest whole dollar.

Present value of $1:

8%

9%

10%

1

0.926

0.917

0.909

2

0.857

0.842

0.826

3

0.794

0.772

0.751

4

0.735

0.708

0.683

5

0.681

0.65

0.621

6

0.63

0.596

0.564

7

0.583

0.547

0.513

A) $650,000

B) $100,000

C) $400,000

D) $300,000

17) John wins the lottery and has the following three payout options for after-tax prize money:

1. $50,000 per year at the end of each of the next six years

2. $300,000 (lump sum) now

3. $500,000 (lump sum) six years from now

The required rate of return is 9%. What is the present value if he selects the third option? Round to nearest whole dollar.

Present value of $1:

8%

9%

10%

1

0.926

0.917

0.909

2

0.857

0.842

0.826

3

0.794

0.772

0.751

4

0.735

0.708

0.683

5

0.681

0.65

0.621

6

0.63

0.596

0.564

7

0.583

0.547

0.513

A) $250,000

B) $230,000

C) $238,400

D) $298,000

18) Nylan Manufacturing is considering two alternative investment proposals with the following details:

Proposal X

Proposal Y

Investment

$720,000

$500,000

Useful life

5 years

4 years

Estimated annual net cash inflows

$150,000

$90,000

Residual value

$50,000

$0

Depreciation method

Straight-line

Straight-line

Discount rate

10%

9%

What is the total present value of future cash inflows from Proposal Y?

Present value of annuity of $1:

8%

9%

10%

1

0.926

$0.92

0.909

2

1.783

1.759

1.736

3

2.577

2.531

2.487

4

3.312

3.24

3.17

5

3.993

3.89

3.791

6

4.623

4.486

4.355

A) $266,750

B) $291,600

C) $290,000

D) $250,000

19) Nylan Manufacturing is considering two alternative investment proposals with the following details:

Proposal X

Proposal Y

Investment

$720,000

$500,000

Useful life

5 years

4 years

Estimated annual net cash inflows

$150,000

$90,000

Residual value

$50,000

$0

Depreciation method

Straight-line

Straight-line

Discount rate

10%

9%

What is the total present value of future cash inflows from Proposal X?

Present value of annuity of $1:

8%

9%

10%

1

0.926

$0.92

0.909

2

1.783

1.759

1.736

3

2.577

2.531

2.487

4

3.312

3.24

3.17

5

3.993

3.89

3.791

6

4.623

4.486

4.355

Present value of $1:

8%

9%

10%

1

0.926

0.917

0.909

2

0.857

0.842

0.826

3

0.794

0.772

0.751

4

0.735

0.708

0.683

5

0.681

0.65

0.621

6

0.63

0.596

0.564

A) $742,340

B) $650,070

C) $568,650

D) $599,700

20) Arriyana has just received an inheritance of $100,000, and she would like to put it into an investment portfolio for 20 years. Which of the following would be useful to calculate the value of the investment at the end of 20 years?

A) Present Value of $1

B) Present Value of an Annuity of $1

C) Future Value of $1

D) Future Value of an Annuity of $1

21) Zane has received a prize which entitles him to receive annual payments of $10,000 for the next 10 years. Which of the following is to be referred to in order to calculate the total value of the prize today?

A) Present Value of $1

B) Present Value of an Annuity of $1

C) Future Value of $1

D) Future Value of an Annuity of $1

22) James has just won the lottery after purchasing one $10 lottery ticket. The state offers him the following three payout options for after-tax prize money:

1. $50,000 per year at the end of each of the next six years

2. $300,000 (lump sum) now

3. $400,000 (lump sum) six years from now

Calculate the present value of each scenario using an 8% discount rate. Round to nearest whole dollar.

Present value of annuity of $1:

7%

8%

9%

1

0.935

0.926

0.917

2

1.808

1.783

1.759

3

2.624

2.577

2.531

4

3.387

3.312

3.24

5

4.1

3.993

3.89

6

4.767

4.623

4.486

Present value of $1:

7%

8%

9%

1

0.935

0.926

0.917

2

0.873

0.857

0.842

3

0.816

0.794

0.772

4

0.763

0.735

0.708

5

0.713

0.681

0.65

6

0.666

0.63

0.596

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