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Horngren'S Financial And Managerial Accounting
Found in: Page 1469

Short Answer

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.

See the step by step solution

Step by Step Solution

Step 1: Meaning of Lottery

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.

Step 2: Analyzing the various option

Option #1

Option #2

Option #3

Option #2 depicts more present value as compared to the other option. So, option #2 will be preferable.

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