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
suter [353]
3 years ago
5

Suppose you just won the state lottery, and you have a choice between receiving $2,575,000 today or a 20-year annuity of $250,00

0, with the first payment coming one year from today. What rate of return is built into the annuity? Disregard taxes.
Business
1 answer:
Shkiper50 [21]3 years ago
8 0

Answer:

Ans. rate of return= 7.37%

Explanation:

The easiest way to find this discount rate is to set a MS Excel sheet and use the function "Find Goal". In the attachments, there is a spreadsheet that I got ready for you. There are 2 cells in color, one is yellow and the other one is green. You just go ahead and replace the value of the green cell with any percentage that you want, for example, 2%, then use the function "find goal" and set the objective cell to be the yellow cell (B5), changing the cell in green (B7), and hit enter.

Best of luck.

Download xlsx
You might be interested in
You are the beneficiary of a life insurance policy. The insurance company informs you that you have two options for receiving th
lara [203]

Answer:

E. You should accept the $200,000 because the payments are only worth $195,413 to you today

Explanation:

We solve for the presnet value of an annuity of 20 year of $1400 at 0.5% discount rate

C \times \frac{1-(1+r)^{-time} }{rate} = PV\\

C 1,400.00

time 240 (20 years x 12 month per year)

rate 0.005 (6% / 12 monhts = 0.5% = 0.5/100 = 0.005)

1400 \times \frac{1-(1+0.005)^{-240} }{0.005} = PV\\

PV $195,413.0804

7 0
2 years ago
A firm has determined its cost of each source of capital and its optimal capital structure which is comprised of the following s
barxatty [35]

Answer:

10.25%

Explanation:

Data provided in the question:

Long-term debt = 45%, after-tax cost = 7%

Preferred stock = 15%, after-tax cost = 10%

Common stock equity = 40%, after-tax cost = 14%

Now,

The  weighted average cost of capital for this firm will be calculated as:

= Long term debt × after-tax cost + Preferred stock × after-tax cost + Common stock equity × after-tax cost

or

= 0.45 × 0.07 + 0.15 × 0.10 + 0.40 × 0.14

or

= 0.0315 + 0.015 + 0.056

= 0.1025

or

= 0.1025 × 100%

= 10.25%

5 0
3 years ago
Using the percentage of receivables method for recording bad debt expense, estimated uncollectible accounts are $11,000. If the
frosja888 [35]

Answer:

Adjustment balance will be $13800

Explanation:

We have given estimated uncollectible accounts are $11,000

And doubtful account is $2800

We have to find the balance after adjustment

Balance after adjustment will be sum of uncollectible accounts and doubtful account

So the adjustment balance will be equal to $11000 + $2800 = $13800

So the adjustment balance will be $13800

8 0
3 years ago
Janice has car insurance that she must pay four times a year. If each payment is $156, how much money should she set aside each
Lunna [17]

Answer:

Cheap Florida Auto Insurance. Low Rates from $53.99 / Month!

Explanation:

3 0
3 years ago
The government increases taxes. What might be a reason for this change in fiscal policy?
Crank
A; a deficit due to improving nationwide public transportation. Surplus in this case means that we have left over money.
8 0
3 years ago
Read 2 more answers
Other questions:
  • The main advantage of diversification as an investment policy is that it
    13·1 answer
  • In a mixed economy, how is output allocated? Question 4 options: Via the market mechanism Partly by the market mechanism and par
    5·1 answer
  • The fixed cost of Perfect Pizzas, a pizza restaurant, is $400,000 per year. The cost of ingredients and chef to make one pizza i
    11·1 answer
  • You work for a full-service salon and day spa and are writing a sales message targeted for working women. You describe your spa'
    7·1 answer
  • Accumulated depreciation shows a beginning balance of $9,300 and an ending balance of $10,700. How much depreciation expense was
    12·1 answer
  • An increase in the amount of household wealth in an economy would ________ the average standard of living and would ________ the
    13·1 answer
  • A gas station with only one gas pump employs the following policy: If a customer has to wait to buy the gasoline, the price is $
    9·1 answer
  • A firm that decides to emphasize those goods with the highest contribution margin per unit may have made an incorrect decision w
    8·1 answer
  • What is your favorite restaurant and why?
    12·2 answers
  • Provide an example of a clothing store using “non-price” competition.
    8·1 answer
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!