Howie long has just learned he has won a 506800 prize in, Ask an Expert

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Howie Long has just learned he has won a $506,800 prize in the lottery. The lottery has given him two options for receiving the payments. (1) If Howie takes all the money today, the state and federal governments will deduct taxes at a rate of 47% immediately.

(2) Alternatively, the lottery offers Howie a payout of 20 equal payments of $36,300 with the first payment occurring when Howie turns in the winning ticket. Howie will be taxed on each of these payments at a rate of 26%. Assuming Howie can earn an 8% rate of return (compounded annually) on any money invested during this period, compute the present value of the cash flows for annuity payout.

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M9966077

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