Computing the present value of winnings


Q1) Caldwell Herald newspaper reported the following story:

Frank Ormsby of Caldwell is states newest millionaire. By selecting six winning numbers on last weeks state lottery, Mr. Ormsby has won weeks grand prize totaling $1.6 million. State Lottery Commission has pointed out that Mr. Ormsby will get his prize in 20 annual installments of $80,000 each.

a. If Mr. Ormsby can invest money at a 12% rate of return, compute the present value of his winnings?

b. Is it right to say that Mr. Ormsby is state newest millionaire? Describe your answer.

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Accounting Basics: Computing the present value of winnings
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