Juan Has Just Received a Prize Which Entitles Him to Receive

question 70

Multiple Choice

Juan has just received a prize which entitles him to receive annual payments of $10,000 at the end of each year for the next 10 years. He would like to sell the rights to the prize money to a financial institution, so that he can have the cash now. In order to estimate the present value of the prize, he will use a discount rate of 5%. What is the present value of the prize?
$\begin{array}{|r|c|c|c|c|c|c|}\hline \text {Present Value of }\\\text {an Annuity of \$ 1}\\\hline &5\%&6\%&7\%&8\%&9\%&10\%\\\hline1 & 0.952 & 0.943 & 0.935 & 0.926 & 0.917 & 0.909 \\\hline 2& 1.859 & 1.833 & 1.808 & 1.783 & 1.759 & 1.736 \\\hline 3& 2.723 & 2.673 & 2.624 & 2.577 & 2.531 & 2.487 \\\hline 4 & 3.546 & 3.465 & 3.387 & 3.312 & 3.240 & 3.170 \\\hline 5& 4.329 & 4.212 & 4.100 & 3.993 & 3.890 & 3.791 \\\hline6& 5.076 & 4.917 & 4.767 & 4.623 & 4.486&4.355 \\\hline7& 5.786& 5.582 & 5.389 & 5.206 & 5.033&4.868 \\\hline8& 6.463 & 6.210 & 5.971 & 5.747 & 5.535&5.335 \\\hline9& 7.108 & 6.802 & 6.515 & 6.247 & 5.995&5.759\\\hline 10&7.722& 7.360 & 7.024 & 6.710&6.418&6.145 \\\hline\end{array}$

• A) $61,450
• B) $71,080.
• C) $77,220
• D) $71,080

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Definitions:

Top Management

The highest level of managerial and executive leadership within an organization, responsible for strategic planning and decision-making.

Delegation

The assignment of authority and responsibility to another person to carry out specific activities while retaining ultimate accountability for the outcome.

Supervision and Subordination

The management process involving overseeing employees' work and guiding their performance, while those employees are in roles of lesser authority.

Centralization

The degree to which decision-making authority is concentrated at higher levels within an organization.