# Lottey Wining

**Topics:**Net present value, Investment, Rate of return

**Pages:**3 (838 words)

**Published:**April 24, 2013

Lottery will pay 50% of published value, if cash option is selected and federal Cash before taxes = 181,500,00 * 0.50 = $90,750,000

Option B: Annuity of 26 years.

Under annuity option, Lottery takes all the money and invests to fund in 26-years annuity and gives payments to winner. Lottery invests 50% of 181,500,000 (present cash value of lump-sum amount) and Lottery received rate of interest of 4%, using calculator:

N=26, I/Y = 4, PV = -90,750,000, FV=0, CPT PMT =?

Payment = $ 5,677,989.78 ( per year).

Now, calculate the Present Values of future payments (26 payments of $ 5,677,989.78 /year) discount rate at 5%

Considering 5%, as investment rate of return, offered by risk-free investment. Calculate Present value:

N=26, I/Y = 5, PMT = 5,677,989.78, FV =0, CPT PV = ?

Present value = $ 81,622,155.22

Since, The Present value of the Option A (Annuity of 26 years), is less than option A Lump-Sum). I would select Option (A) ie. Lump-Sum/Cash option.

Question 2: If you decide to select the annuity option, how much money would you receive each year after taxes? Answer 2: Lottery Prize = $ 181,500,000 as 2 winners for 363 million jackpot. Under annuity option, Lottery takes all the money and invests to fund in 26-years annuity and gives payments to winner. Lottery invests 50% of 181,500,000 (present cash value of lump-sum amount) and Lottery received rate of interest of 4%, using calculator:

N=26, I/Y = 4, PV = -90,750,000, FV=0, CPT PMT =?

Payment = $ 5,677,989.78 ( per year).

Payment (Before Tax) = $ 5,677,989.78 ( per year)

Total Tax = .28 +.042 = 0.322

Cash after Taxes = 5,677,989.78 * (1 –...

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