You win the lottery and must decide how to take the payout. Use an 8% discount rate for all parts of this question.
Present Value of $1
Present Value of Annuity of $1
Required:
a. What is the present value of $12,000 a year received at the end of each of the next six years?
b. What is the present value of taking a $60,000 lump sum now?
c. What is the present value of a $90,000 lump sum taken in 7 years?
Definitions:
Breakeven Analysis
Pricing-related technique used to determine the minimum sales volume a product must generate at a certain price level to cover all costs.
Fixed Costs
Expenses that do not change in proportion to the activity of a business, such as rent, salaries, and insurance.
Unit Contribution
The amount each unit sold contributes to covering fixed costs and generating profit, calculated as the unit selling price minus variable cost per unit.
Penetration Pricing
Strategy that sets a low price as a major marketing tactic.
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