Mary Alice Just Won the Lottery and Is Trying to Decide

question 74

Multiple Choice

Mary Alice just won the lottery and is trying to decide between the options of receiving the annual cash flow payment option of $250,000 per year for 25 years beginning today, or receiving one lump-sum amount today. Mary Alice can earn 6% investing this money. At what lump-sum payment amount would she be indifferent between the two alternatives? (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1)

• A) $6,250,000.
• B) $3,195,840.
• C) $3,637,590.
• D) $3,387,590.

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Definitions:

Income Statement

A financial statement that reports a company's financial performance over a specific accounting period, detailing revenues, expenses, and profits or losses.

Prepaid Rent

An asset account that represents rent payments made in advance of the rental period.

Rent Expense

The cost incurred by renting property or equipment for business or personal use, typically recognized in accounting over the rental period.

Expected Life

The anticipated duration a fixed asset is likely to be useful in business operations before needing replacement.