As the Winning Contestant in a Television Game Show, You

question 16

Multiple Choice

As the winning contestant in a television game show, you are considering the prizes to be awarded.You must indicat sponsor which of the following two choices you prefer, assuming you want to maximize your wealth.Assume it is no January 1, and there is no danger whatever that the sponsor won't pay off. (1)
$1,000 now and another $1,000 at the beginning of each of the 11 subsequent months during the remainder of the year, to be deposited in an account paying 12 percent simple annual rate, but compounded monthly (to be left on deposit for the year) .
(2) $12,750 at the end of the year.
Which one would you choose?

• A)Choice 1
• B)Choice 2
• C)Choice 1, if the payments were made at the end of the year.
• D)The choice would depend on how soon you need the money.
• E)Either one, since they have the same present value.

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Definitions:

Consolidated Statement of Cash Flows

A financial statement that presents the total cash inflows and outflows of a parent company and its subsidiaries.

Non-Voting

Shares in a company that do not grant the shareholder the right to vote on corporate matters.

Cumulative Preferred Stock

Preferred stock that accumulates dividends in case they are not paid in the period they were declared, ensuring those dividends are paid out before any dividends to common shareholders.

Noncontrolling Interest

Equity in a subsidiary not attributable directly or indirectly to the parent company, reflecting the portion of subsidiary earnings not owned by the parent.