You Have a Choice Between a Lottery Lump Sum Payout

question 18

Multiple Choice

You have a choice between a lottery lump sum payout of $5,509,253.62 today or a series of twenty annual annuity payments of $500,000 each (first cash flow one year from today) .At what discount rate are you indifferent between the two choices?

• A)4.50%
• B)5.50%
• C)6.50%
• D)7.50%

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Definitions:

Materials

refers to the raw items and components required in the production of goods, ranging from metals and plastics to textiles and electronics.

Assembly Department

A section in a manufacturing plant where parts are put together to create complete goods.

Weighted-Average Method

A cost flow assumption used in inventory valuation that averages out all costs of goods available for sale during the period.

Manufacturing Activity

A set of processes involved in transforming raw materials into finished products.