Suppose That You Have a Winning Lottery Ticket for $100,000

question 24

Essay

Suppose that you have a winning lottery ticket for $100,000.The State of California doesn't pay this amount up front - this is the amount you will receive over time.The State offers you two options.The first pays you $80,000 up front and that will be the entire amount.The second pays you winnings over a three year period.The last option pays you a large payment today with small payments in the future.The payment options are detailed in the table below:

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Definitions:

Times Interest Earned Ratio

The times interest earned ratio is a financial metric that measures a company's ability to meet its debt obligations based on its current earnings before interest and taxes (EBIT).

Default in Payment

Occurs when a borrower fails to make a loan payment on time as agreed upon in the loan agreement.

Gross Profit Rate

The percentage difference between a company's net sales and the cost of goods sold, indicating the efficiency of sales generation.

Sales Dollar

Refers to the total revenue generated from sales of goods or services, measured in dollars.