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Vlada [557]
3 years ago
11

Howie Long has just learned he has won a $506,300 prize in the lottery. The lottery has given him two options for receiving the

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

(2) Alternatively, the lottery offers Howie a payout of 20 equal payments of $37,000 with the first payment occurring when Howie turns in the winning ticket. Howie will be taxed on each of these payments at a rate of 26%.

Required:

1. Compute the present value of the cash flows for lump sum payout.

2. Assuming Howie can earn an 8% rate of return (compounded annually) on any money invested during this period, compute the present value of the cash flows for annuity payout.

3. Which pay-out option should he choose?
Business
1 answer:
Hitman42 [59]3 years ago
5 0

Answer and Explanation:

According to the scenario, computation of the given data are as follow:-

A).Present Value of the Cash Flow for the Lump Sum Payout

= Prize of Lottery Amount × (1 -Tax Rate)

= $506,300 × (1 - 0.46)

= $506,300 × 0.54

= $273,402

B).Present Value of the Cash Flows for Annuity Payout is

= Annuity Payment × (1 - Tax Rate) × PVIFA 8%,20 Years × (1  + Rate of Return)

= $37,000 × (1 - 0.26) × 9.8181 × (1 + .08)

= $37,000 × 0.74 × 9.8181 × 1.08

= $290,325

c). According to the analysis, $290,325 is more than the $273,402, So he should be chooses option (b) $290,325 as a payout option.

     

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A company's board of directors votes to declare a cash dividend of $.75 per share of common stock. The company has 15,000 shares
Norma-Jean [14]

Answer:

The total amount of the cash dividend is $7,125

Explanation:

The Dividend is declared to pay all the outstanding shares in the market. Sometime the company has some treasury shares in the stocks which is deducted from the total issued shares to find the outstanding shares. In this case, the issued shares and the outstanding numbers of shares are different.

Treasury shares are those shares that are bought back by the company that issued the shares.

Use the following formula to calculate the cash dividend

Cash Dividend = Numbers of outstanding shares x Dividend rate

Where

Numbers of outstanding shares = 9,500 shares

Dividend rate = $0.75 per share

Placing values in the formula

Cash Dividend = 9,500 x $0.75 per share

Cash Dividend = $7,125

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Answer:

Habit Loop

Explanation:

Habit Loop -

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The proper knowledge of these components enables the person to have command of their habits and can easily remove the bad habits and inculcate the good ones .

Hence , from the given scenario of the question,

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3 years ago
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