You Have Won the Lottery and Have Been Given the Choice

question 31

Multiple Choice

You have won the lottery and have been given the choice of receiving $5 million today or $10 million after 10 years. Assume that the interest rate remains fixed at 10% per year for the entire 10-year period. You should choose:

• A)$10 million after 10 years, since this is more than you would get if you invested $5 million for 10 years at an annual rate of interest of 10%.
• B)$10 million after 10 years, since that is a larger amount than the present value of $5 million paid after 10 years.
• C)$5 million today, since it would be worth more than $10 million after 10 years if the $5 million earned interest at the rate of 10% per year.
• D)$10 million after 10 years, since it is the larger amount.

---

Definitions:

Ending Inventory

The total value of a business’s merchandise, raw materials, and products not yet sold at the end of an accounting period.

FIFO

"First In, First Out," an inventory valuation method where goods first acquired are the first to be sold, used in accounting to calculate the cost of goods sold.

Net Income

The profit of a company after all expenses and taxes have been subtracted from total revenue.

Average Cost Method

An inventory costing method where the cost of goods sold and ending inventory is determined by averaging the cost of all similar items available.