Suppose You Have a Winning Lottery Ticket and You Are

question 33

Multiple Choice

Suppose you have a winning lottery ticket and you are given the option of accepting $3000000 three years from now or taking the present value of the $3000000 now. The sponsor of the prize uses a 6% discount rate. If you elect to receive the present value of the prize now the amount you will receive is

• A) $2518860.
• B) $2591520.
• C) $2670000.
• D) $3000000.

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Definitions:

Asset Impairment Loss

A charge recognized when the carrying amount of an asset exceeds its recoverable amount, indicating the asset's value has declined.

Net Book Value

The value at which an asset is carried on a balance sheet, calculated as the original cost minus accumulated depreciation and impairment costs.

Fair Value

The estimated price at which an asset or liability could be exchanged between knowledgeable and willing parties in an arm's length transaction.

Double Declining-Balance Depreciation

A method of accelerated depreciation which doubles the normal depreciation rate that would be applied to an asset under the straight-line method.