Assume that you just won the state lottery

Assignment Help Financial Management

Reference no: EM13890078

Assume that you just won the state lottery. Your prize can be taken either in the form of $40,000 at the end of each of the next 25 years (i.e., $1 million over 25 years) or as a lump sum of $500,000 paid immediately.

a. If you expect to be able to earn 5 percent annually on your investments over the next 25 years, ignoring taxes and other considerations, which alternative should you take? Why?

b. Would your decision in part (a) be altered if you could earn 7 percent rather than 5 percent on your investments over the next 25 years? Why?

c. On a strict economic basis, at approximately what earnings rate would you be in different when choosing between the two plans?

Reference no: EM13890078

Questions Cloud

What is Morriss TIE ratio : The Morris Corporation has $600,000 of debt outstanding, and it pays an interest rate of 8% annually. Morris’s annual sales are $3 million, its average tax rate is 40%, and its net profit margin on sales is 3%. If the company does not maintain a TIE ..

Customer quality for purposes of granting trade credit : Which of the following would NOT typically be used for assessing customer quality for purposes of granting trade credit?

Compute the risk premium for the stock of omega tools : Compute the risk premium for the stock of Omega Tools if the risk free rate is 6%, the expected market return is 12%, and Omega's stock has a beta of .8.

What is the accumulated sum of stream of payments : What is the accumulated sum of the following stream of payments 2849 every year at the end of the year for 11 years at 9.04 percent compounded annually?

Assume that you just won the state lottery : Assume that you just won the state lottery. Your prize can be taken either in the form of $40,000 at the end of each of the next 25 years (i.e., $1 million over 25 years) or as a lump sum of $500,000 paid immediately. If you expect to be able to earn..

Plans to retirement : Assume that your father is now 50 years old, that he plans to retire in 10 years, and that he expects to live for 25 years after he retires - that is, until he is 85. He wants his first retirement payment to have the same purchasing power at the time..

How sensitive is the npv to changes in the quantity sold : Conch Republic Electronics is a midsized electronics manufacturer located in Key West, Florida. The company president is Shelly Couts, who inherited the company. The company originally repaired radios and other household appliances when it was found..

Ceases to withdraw funds from the account : Your uncle has $300,000 invested at 7.5%, and he now wants to retire. He wants to withdraw $35,000 at the end of each year, beginning at the end of this year. He also wants to have $25,000 left to give you when he ceases to withdraw funds from the ac..

How much more is nancys cash flow worth : Mary is going to receive a 30-year annuity of $10,500. Nancy is going to receive perpetuity of $10,500. If the appropriate interest rate is 7 percent, how much more is Nancy’s cash flow worth?

User Account

All Pages