You Won the Lottery and Have a Number of Choices

question 158

Multiple Choice

You won the lottery and have a number of choices as to how to take the money. Which choice yields a greater present value? Present Value of $1
Present Value of Annuity of $1

• A)$12,000 a year at the end of each of the next 6 years using a 6% discount rate
• B)$53,500 (lump sum)now using a 6% discount rate
• C)$90,000 (lump sum)7 years from now using a 6% discount rate
• D)$92,000 (lump sum)7 years from now using an 8% discount rate

---

Definitions:

Variable Costs

Costs that vary directly with the level of production or sales, such as materials and labor costs.

Fixed Costs

Expenses that do not vary with the level of production or sales, such as rent, salaries, and insurance.

Variable Costs

Expenses that change in proportion to the activity of a business, such as the cost of raw materials or production volume.

Total Revenue

The amount of money generated from sales of goods or services before any expenses are subtracted.