Introduction Hallelujah, I just won the lottery. There are three options for payment: receive one-hundred million dollars in cash today; or, receive twenty-five million in cash today and nine-million per year for 8 years, with the first payment due one year from today; or, fifteen million per year for 10 years, with the first payment due one year from today. This is a dream come true, however, before I start spending the money, I have a dilemma. My intention is to make an informed financial decision, based on how to create the most wealth for myself and my family. The question is; which option should I choose? The value of each alternative is revealed by using the present value concept for cash, as well as, for an annuity. Additionally; the current interest rate, number of payment years, and, the future value of cash payments, are considerations used in the calculation. Therefore, we assume a current interest rate of 7%; and use the table in Appendix A of the textbook, “Financial Accounting” (Duchac, Reeve, Warren, 2014), to compute the results for each option. Ultimately; the selection that provides the most financial security, is the best choice. …show more content…
Prior to considering the present value concept in this decision; instinctually, this method of payment is my favorite. Authors Duchac, Reeve, and Warren (2014) agree; they explain: “You would rather have the $1,000 today because it could be invested to earn interest.” Therefore, I use the related concept of future value, to determine the value of cash received today. Assuming a 7% current interest rate for investing; the present value of one-hundred million dollars received today, is calculated as