O'Reilly Is a Masterful Lottery Player

question 69

Essay

O'Reilly is a masterful lottery player. The megamillion jackpot is now up to $200 million. If O'Reilly wins the jackpot, he has a choice of receiving $200 million in five years or a smaller lump sum now. Advise O'Reilly on his choice under the following scenarios. Which option should he take and why? Use Exhibit 3.1. a. O'Reilly's after-tax return is 10 percent. If he chooses the current lump-sum option, the lottery will pay him $130 million. b. O'Reilly's after-tax return is 10 percent. His current tax rate will be 35 percent if he receives the lottery payment now. His expected tax rate in five years will be 40 percent. If he chooses the current lump-sum option, the lottery will pay him $100 million.

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Definitions:

Entrepreneur

An individual who innovates, organizes, operates, and assumes the risk for a business venture.

Opportunities

Circumstances or situations that present a possibility for advancement, improvement, or success.

Threats

Potential sources of harm or adverse effects that could cause damage or jeopardize a particular outcome or objective.

Soft Skills

Interpersonal attributes and personality traits that enhance an individual's interactions, job performance, and career prospects, including communication, teamwork, and problem-solving skills.