1answer.
Ask question
Login Signup
Ask question
All categories
  • English
  • Mathematics
  • Social Studies
  • Business
  • History
  • Health
  • Geography
  • Biology
  • Physics
  • Chemistry
  • Computers and Technology
  • Arts
  • World Languages
  • Spanish
  • French
  • German
  • Advanced Placement (AP)
  • SAT
  • Medicine
  • Law
  • Engineering
romanna [79]
3 years ago
7

oe Smith, age 75, from Vienna, IL has the winning Powerball lottery numbers which will pay out $13 million at the beginning of e

ach of the next 30 years (reported prize of $390 million). Before claiming his prize, Trusty Insurance Company offers Joe $200 million today in exchange for his winning lottery ticket and prize payout. What rate of return would Trusty Insurance earn if Joe accepts their offer?
Business
1 answer:
shutvik [7]3 years ago
3 0

Answer:

The IRR is 5%. Rate of return would be 12.5% assuming a discount rate of 4%

Explanation:

The answer depends entirely on the discount rate. The question covers a 30 period timeframe and in each period, the pay off is $13 million. This is a simple time value of money concept in which to calculate the present value, you will simply calculate the present value of each of the cash flows. The formula is 13Mn/[(1+r)^n] where n is the year from 1 to 30, r is the discount rate.

The question requires us to calculate the return that is the variable 'r'. For this you need to have the present value today so that you can then use the equation to solve for 'r'. However, the only information we have is the time period and the cash flow. We are given $200mn as the initial outlay. So, we can at least use this to calculate the internal rate of return (IRR) which is simply the rate of return (or the value of 'r') at which the present value of each of the 13 Mn to be received over the next 30 years is equal to the initial outlay (i.e 200mn). In short, IRR is the rate of return at which the net present value (NPV) is equal to zero. In our example, and using the formula for each of the cash flow from years 1 to 30, the IRR is computated at 5%. So if the discount rate that the company uses is less than 5%, the company would be better of with Joe accepting the offer because any discount rate below 5% would result in the present value of the cash flows to be in excess of $200Mn.

Lets take an example and assume that the discount rate is 4%, using the formula from year 1 to 30 and summing the values would give us a present value of $225 Mn. So the rate lf return in this case would be (225-200)/200 x 100 = 12.5%.

You might be interested in
________is the interest that the bank pays you on the principal plus on the_________ that you earned the preceding year.
Yuliya22 [10]

Answer:

Compound interest; interest.

Explanation:

Compound interest can be defined as the interest that the bank pays you on the principal plus on the interest that you earned the preceding year. Thus, it is simply calculated by adding an interest to the initial principal i.e compounding the interest rather than withdrawal.

Mathematically, compound interest is given by the formula;

A = P(1 + \frac{r}{n})^{nt}

Where;

A is the future value.

P is the principal or starting amount.

r is annual interest rate.

n is the number of times the interest is compounded in a year.

t is the number of years for the compound interest.

7 0
2 years ago
Read 2 more answers
Which of the following is a type of intellectual property?
GuDViN [60]
C: software

in most countries, there are four primary types of intellectual property (IP) that can be legally protected: patents, trademarks, copyrights, and trade secrets.

Copyrights do not protect ideas, but rather the manner in which ideas are expressed (“original works of authorship”) - written works, art, music, architectural drawings, or even programming code for software
5 0
2 years ago
Colleen Matthews had just turned 22 when her hard work finally started to pay off. Six months earlier Colleen graduated from a s
const2013 [10]

Answer:

Prosecutors of this case can use the net worth method to determine the extent these executives have been receiving  illegal incomes by computing their wealth at the beginning  and at the end of the period under investigation.

There will be an increase in the executives wealth, and since this increase cannot be traced to any legal income source, it will become taxable income, with the calculated penalties and fines.

Explanation:

The net worth method specifies that any increase in wealth, which is not traced to non-taxable sources, should be determined as a taxable income for the period under review.  Ordinarily, the net worth is the difference between assets and liabilities.  Since the executives use the money personally at their convenience, this will increase their personal wealth.

5 0
2 years ago
Compute the uncollectible account expense, and make the appropriate journal entry, for the current year assuming the uncollectib
Gnoma [55]

Question Completion:

Johnson Corporation’s Unadjusted Trial Balance at year-end included the following accounts:

Debit Credit

Sales (75% represent credit sales) (credit) $1,152.000

Accounts Receivable(debit) $288,000

Allowance for Doubtful Accounts (credit) $2,184

Answer:

<h2>Johnson Corporation</h2>

a. Without considering the balance in the Allowance for Doubtful Accounts, income statement approach, 1% of total sale:

Journal Entry:

Debit Uncollectible Accounts Expense $11,520

Credit Allowance for Doubtful Accounts $11,520

To record the uncollectible accounts expense for the year.

b. Without considering the balance in the Allowance for Doubtful Accounts, income statement approach, 1.5% of credit sales:

Journal Entry:

Debit Uncollectible Accounts Expense $12,960

Credit Allowance for Doubtful Accounts $12,960

To record the uncollectible accounts expense for the year.

c. Considering the balance in the Allowance for Doubtful Accounts, balance sheet approach

Journal Entry:

Debit Uncollectible Accounts Expense $9,816

Credit Allowance for Doubtful Accounts $9,816

To record the uncollectible accounts expense for the year.

Explanation:

a) Data and Determination of Uncollectible Expenses and Allowances:

Sales (75% represent credit sales) (credit) $1,152,000

Accounts Receivable(debit) $288,000

Allowance for Doubtful Accounts (credit) $2,184

1. Uncollectible Accounts Expense = 1% of Sales:

= 1% of $1,152,000

= $11,520

2. Uncollectible Accounts Expense = 1.5% of Credit Sales:

= 1.5% of $864,000 (75% of $1,152.000 )

= $12,960

3. Allowance for Doubtful Accounts based on an aging of accounts receivable of $12,000:

Adjustment required to bring the Allowance for Doubtful Accounts to $12,000 is $9,816 ($12,000 - 2,184).

4 0
3 years ago
A _____ orientation explicitly invokes the concept of value such as when a firm uses a no-haggle pricing structure to make the p
PolarNik [594]

Answer:

Customer orientation

Explanation:

Customer orientation is described as a strategy to revenues and customer relationships in which employees focus on developing customers encounter their brief-term needs and desires. Here, management and staff align their physical and technical goals with customer satisfaction and retention.

Customer orientation is crucial to the gratification of a customer. Analysis into customer needs and satisfaction can improve your organization's customer orientation.

5 0
2 years ago
Other questions:
  • Which of the following schools is least likely to receive state tax dollars? A. Liberty Baptist University
    6·1 answer
  • If total liabilities increased by $6,000 and the assets increased by $8,000 during the accounting period, what is the change in
    14·1 answer
  • Which of the following explanations resolve the Leontief paradox?a. Leontief assumed that U.S. and foreign technologies were the
    10·1 answer
  • The chart gives prices and output information for the country of Utopia. Use this information to calculate real and nominal GDP
    8·1 answer
  • Suppose an economic boom drives up wages for the sales representatives who work for cell phone companies. This will cause the:__
    14·1 answer
  • The action of using a mouse to drag a selection from its original location and drop it in a new location
    7·1 answer
  • Dimon Products' sales are expected to be $5 million this year, with 90% on credit and 10% for cash. Sales are expected to grow a
    10·1 answer
  • When a magazine company collects cash for selling a subscription, it is an example of: Multiple Choice An accrued liability tran
    10·2 answers
  • Consider the CAPM. The risk-free rate is 7%, and the expected return on the market is 13%. What is the expected return on a stoc
    5·1 answer
  • How would you pay taxes on a earned income?
    7·1 answer
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!