User Account

All Pages

Which pay out option should he choose

Assignment Help Accounting Basics
Reference no: EM131105597

1. (Evaluating Payment Alternatives) Terry O'Malley has just learned he has won a $900,000 prize in the lottery. The lottery has given him two options for receiving the payments: 

(1) If Terry takes all the money today, the state and federal governments will deduct taxes at a rate of 46% immediately. 

(2) Alternatively, the lottery offers Terry a payout of 20 equal payments of $62,000 with the first payment occurring when Terry turns in the winning ticket. Terry will be taxed on each of these payments at a rate of 25%.

Assuming Terry can earn an 8% rate of return (compounded annually) on any money invested during this period, which pay-out option should he choose? 

Reference no: EM131105597

Questions Cloud

What is the interest rate, to the nearest percent : Mark Grace Inc. loans money to John Kruk Corporation in the amount of $600,000. Grace accepts an 8% note due in 7 years with interest payable semiannually.
Does it appear that inventories could be adjusted : Does it appear that inventories could be adjusted? If so, how should that adjustment affect D'Leon's profitability and stock price?
Sally brown died leaving to her husband linus : $4,000 every 3 months for 3 years and $1,200 each quarter for the following 25 quarters, all payments payable at the end of each quarter.
How would that change ripple through the financial statement : if the company could improve its collection procedures and thereby lower its DSO from 45.6 days to the 32-day industry average without affecting sales, how would that change "ripple through" the financial statements (shown in thousands below) and inf..
Which pay out option should he choose : Assuming Terry can earn an 8% rate of return (compounded annually) on any money invested during this period, which pay-out option should he choose?
What are the firm''s major strengths and weaknesses : Use the DuPont equation to provide a summary and overview of D'Leon's financial condition as projected for 2009. What are the firm's major strengths and weaknesses?
Do these ratios indicate that investors are expected : Calculate the 2009 price/earnings ratio and market/book ratio. Do these ratios indicate that investors are expected to have a high or low opinion of the company?
Calculate the 2009 operating margin, profit margin : Calculate the 2009 operating margin, profit margin, basic earning power (BEP), return on assets (ROA), and return on equity (ROE). What can you say about these ratios?
Calculate the 2009 debt and times-interest-earned ratios : Calculate the 2009 debt and times-interest-earned ratios. How does D'Leon compare with the industry with respect to financial leverage? What can you conclude from these ratios?

Reviews

Write a Review

Accounting Basics Questions & Answers

  How much control does fed have over this longer real rate

Hubbard argues that the Fed can control the Fed funds rate, but the interest rate that is important for the economy is a longer-term real rate of interest.   How much control does the Fed have over this longer real rate?

  Coures:- fundamental accounting principles

Coures:- Fundamental Accounting Principles: - Explain the goals and uses of special journals.

  Accounting problems

Accounting problems,  Draw a detailed timeline incorporating the dividends, calculate    the exact Payback Period  b)   the discounted Payback Period. the IRR,  the NPV, the Profitability Index.

  Theory of interest - term structure of interest rates

Term Structure of Interest Rates

  Write a report on internal controls

Write a report on Internal Controls

  Prepare the bank reconciliation for company

Prepare the bank reconciliation for company.

  Cost-benefit analysis

Create a cost-benefit analysis to evaluate the project

  Theory of interest

Theory of Interest: NPV, IRR, Nominal and Real, Amortization, Sinking Fund, TWRR, DWRR

  Liquidity and profitability

Distinguish between liquidity and profitability.

  What is the expected risk premium on the portfolio

Your Corp, Inc. has a corporate tax rate of 35%. Please calculate their after tax cost of debt expressed as a percentage. Your Corp, Inc. has several outstanding bond issues all of which require semiannual interest payments.

  Simple interest and compound interest

Simple Interest, Compound interest, discount rate, force of interest, AV, PV

  Capm and venture capital

CAPM and Venture Capital

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +1-415-670-9521

Phone: +1-415-670-9521

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd