Compute the present value of cash flows for annuity payout

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Reference no: EM132000108

Newman Long has just learned he has won a $508,300 prize in the lottery. The lottery has given him two options for receiving the payments. (1) If Newman takes all the money today, the state and federal governments will deduct taxes at a rate of 46% immediately. (2) Alternatively, the lottery offers Newman a payout of 20 equal payments of $39,600 with the first payment occurring when Newman turns in the winning ticket. Newman will be taxed on each of these payments at a rate of 25%.

B. Assuming Newman can earn an 10% rate of return (compounded annually) on any money invested during this period, compute the present value of the cash flows for annuity payout.

Present value of annuity payout

Reference no: EM132000108

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