Congratulations! You have won a state lottery. The state lottery offers you the following (after-tax) payout options:
Option #1: $12,000,000 after five years
Option #2: $2,150,000 per year for five years
Option #3: $10,000,000 after three years
Assuming you can earn 6% on your funds, which option would you prefer?
Option #2 would be preferable.
A lottery could be a kind of gaming in which members buy numbered tickets. The numbers on tickets are picked, and those with particular numbers on their tickets win a prize.
Option #2 depicts more present value as compared to the other option. So, option #2 will be preferable.
S26-2 Using payback to make capital investment decisions
Carter Company is considering three investment opportunities with the following payback periods:
Use the decision rule for payback to rank the projects from most desirable to least desirable, all else being equal.
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