Accounting 25th Edition by Carl Warren, James Reeve, Jonathan Duchac

Exercise 3

Present values
Alex Kelton recently won the jackpot in the Colorado lottery while he was visiting his parents. When he arrived at the lottery office to collect his winnings, he was offered the following three payout options:
a. Receive $100,000,000 in cash today.
b. Receive $25,000,000 today and $9,000,000 per year for 8 years, with the first payment being received one year from today.
c. Receive $15,000,000 per year for 10 years, with the first payment being received one year from today.
Assuming that the effective rate of interest is 7%, which payout option should
Alex select Use the present value tables in Appendix A. Explain your answer and provide any necessary supporting calculations.