Carolyn Fields Has Just Won the State Lottery Present Value of $1

question 125

Essay

Carolyn Fields has just won the state lottery. The state offers the following three payout options for after-tax prize money:
1. $50,000 per year at the end of each of the next six years
2. $300,000 (lump sum) now
3. $400,000 (lump sum) six years from now
Calculate the present value of each scenario using an 8% annual discount rate. Round to nearest whole dollar.
Present value of an ordinary annuity of $1:
$$\begin{array} { | l | r | r | r | } \hline & { 7 \% } &{ 8 \% } &{ 9 \% } \\\hline 1 & 0.935 & 0.926 & 0.917 \\\hline 2 & 1.808 & 1.783 & 1.759 \\\hline 3 & 2.624 & 2.577 & 2.531 \\\hline 4 & 3.387 & 3.312 & 3.240 \\\hline 5 & 4.100 & 3.993 & 3.890 \\\hline 6 & 4.767 & 4.623 & 4.486 \\\hline\end{array}$$ Present value of $1:
$$\begin{array} { | c | r | r | r | } \hline &{ 7 \% } &{ 8 \% } & { 9 \% } \\\hline 1 & 0.935 & 0.926 & 0.917 \\\hline 2 & 0.873 & 0.857 & 0.842 \\\hline 3 & 0.816 & 0.794 & 0.772 \\\hline 4 & 0.763 & 0.735 & 0.708 \\\hline 5 & 0.713 & 0.681 & 0.650 \\\hline 6 & 0.666 & 0.630 & 0.596 \\\hline\end{array}$$

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Definitions:

Organizational Mission

The fundamental purpose or goal that guides an organization, describing what it seeks to achieve and who it serves.

Internal Control

Internal control comprises the rules, policies, and procedures an organization implements to ensure the integrity of financial and accounting information, promote accountability, and prevent fraud.

Sexual Harassment

Unwelcome sexual advances, requests for sexual favors, or other verbal or physical conduct of a sexual nature in the workplace or learning environments.

Bureaucratic Control

A system of managing an organization through strict policies, procedures, and hierarchy, emphasizing adherence to rules and formal authority.