Felice Lucas Has Just Won the State Lottery and Has

question 68

Multiple Choice

Felice Lucas has just won the state lottery and has the following three payout options for after-tax prize money:
1) $170,000 per year at the end of each of the next six years
2) $312,000 (lump sum) now
3) $508,000 (lump sum) six years from now
The annual discount rate is 9%.Compute the present value of the first option.(Round your answer to the nearest whole dollar. )
Present value of an ordinary annuity of $1:

Present value of $1:

• A)$850,000
• B)$762,620
• C)$482,000
• D)$457,251

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Definitions:

Uncollectible

Refers to accounts receivable that a business deems unlikely to be collected and writes off as a loss.

Direct Write-off

A method for accounting for bad debts whereby debts deemed uncollectable are written off directly against income at the time they are determined to be uncollectable.

Allowance Method

An accounting technique used to estimate and account for doubtful accounts, reducing accounts receivable to their net realizable value.

Direct Write-off Method

A method used in accounting to write off bad debt expenses when a company decides an account is uncollectible, directly affecting the income statement.