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Elan Coil [88]
3 years ago
7

A $600,000 state lottery prize is spread evenly over twelve years ($50,000 a year) (Alternative 1), or you may take a lump distr

ibution of $452,000 (Alternative 2). If you can earn 8 percent, calculate the present values of both alternatives. Use Appendix D to answer the question. Round your answers to the nearest dollar.
Business
1 answer:
scZoUnD [109]3 years ago
5 0

Answer and Explanation:

The computation of the present values of both alternatives is shown below:

For alternative one, the lump sum amount is

= Yearly payment × PVIFA factor at 8% for 12 years

= $50,000 × 7.5361

= $376,805

And, in the alternative 2, the lumpsum amount i.e. present value is $452,000

So as we can see that the alternative 2 is better as the lumspsum amount is high as compared with the alternative 1

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5 0
2 years ago
Read 2 more answers
Lee is considering buying one of two newly-issued bonds. Bond A is a twenty-year, 7.5% coupon bond that is non-callable. Bond B
vova2212 [387]

Answer:

Multiple choices below are missing:

A) purchase Bond A

B) purchase Bond B

C) purchase neither A nor B at this time

D) negotiate a higher rate on Bond A

The correct option is A,purchase bond A.

Explanation:

By purchasing Bond A,Lee is assured interest payment of 7.5% for a period of twenty years,hence the issuer cannot call the bond if interest rate drops by 2% in order to issue a lower interest-bearing bond which would be cheaper cost-wise.

However, if Lee purchases Bond B with current coupon of 8.25%,the interest is only guaranteed for a period of two years,since the issuer has the prerogative of calling back the bond after two years should interest fall in order to issue another bond that commands lower interest rate.

6 0
3 years ago
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Answer:

price variance  $(22,800.00) UNFAVORABLE

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std cost                           $6.00

actual cost                    $9.00

quantity                       7,600

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