Question

Reporting and Interpreting liabilities

please include the steps as well. thank you

E9-18 (Algo) Using Present Value Concepts for Decision Making LO 9-7 You have just won the state lottery and have two choices for collecting your winnings. You can collect $101,500 today or receive $20,300 at the end of each year for the next seven years. A financial analyst has told you that you can earn 10% on your investments. Required: 1. Calculate the present value of both the options (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use the appropriate factor(s) from the tables provided. Round your answers to nearest whole dollar.) Present Value Option 1 Option 2 2. Which alternative should you select? Option 1 Option 2

Answer 1

1 Present Value of both Options: Option 1: $1,01,500 Option 2: $20,300 at end of each year for 7 years Rate of Interest 10% Option 2. Computation of present value Year Cash Flow Annuity Factor Disc. Cash Flow 01-07 $20,300 4.8684 $98.829.00 Present Value $98,829.00 Option 1: Option 2: $1,01,500 $98.829 2 Alternative to be selected Since Present value of Option 1 is more than Present value of Option 2. Option 1 has to be selected Option 1

Option 1 to be selected. Present value is $101500