O'Reilly Is a Masterful Lottery Player

question 58

Essay

O'Reilly is a masterful lottery player. The megamillion jackpot is now up to $200 million. If O'Reilly wins the jackpot, he has a choice of receiving $200 million in 5 years or a smaller lump sum currently. Advise O'Reilly on his choice under the following scenarios. Which option should he take and why?
a. O'Reilly's after tax return is 10%. If he chooses the current lump sum option, the lottery will pay him $130 million.
b. O'Reilly's after-tax return is 10%. His current tax rate will be 35% if he receives the lottery payment now. His expected tax rate in five years will be 40%. If he chooses the current lump sum option, the lottery will pay him $100 million.

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Definitions:

Faster Response

The ability to react and adapt quickly to changes in the market or customer demand, often enhancing customer satisfaction and competitive edge.

Product Characteristics

The attributes or features of a product that define its nature, functionality, and usability for the end user.

Network Requirements

Specifications and criteria that need to be met for the infrastructure and operations of a network, such as a telecommunications or logistics network, to function effectively.

Distribution Network

The system of warehouses, transportation options, and distribution centers that helps in moving products from manufacturers to consumers.