The Phone Rings

question 10

Essay

The phone rings. You answer, "Hello." Is this Billy Bob?" "Yes, it is." "This is Ed McMahon. Congratulations! You have just won the Just Kidding Clearing House sweepstakes! How would you like us to pay you?"
You ponder over the best choice of accepting your winnings:
1. Equal payments of $250,000 at the end of each year for twenty years
2. A lump-sum payment of $2,400,000 today
3. A lump-sum payment of $100,000 today and payments of $400,000 at the end of every year for 10 years
All earnings can be invested at 10 percent. Make a choice of one of the three options. Show calculations.

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Definitions:

Bottleneck

A point of congestion in a production system that occurs when workloads arrive too quickly for the production process to handle, impairing the efficiency of the system.

Constrained Resource

A limited resource within a production process that restricts the company's ability to produce more goods or services.

Profitable Use

An application or deployment of resources in a manner that generates financial gain or returns above the initial cost.

Contribution Margin

The amount by which a product's selling price exceeds its total variable costs, contributing to covering fixed costs and generating profit.