Evaluation of alternative projects - Time Value of money.
Congratulations! You have just won the lottery! However, the lottery bureau has just informed you that you can take your winnings in one of two ways. Choice X pays $1,000,000. Choice Y pays $1,750,000 at the end of five years from now.
1. using a discount rate of 5 percent, based on present values, which would you choose? Be sure to show the PV of both choices.
2. Using the same discount rate of 5 percent, based on future values, which would you choose? Be sure to show the FV of both choices.
3. What do your results suggest as a general rule for approaching such problems? (Make your choices based purely on the time value of money.)