10. You decided to play the lottery and (congratulations!) you were the only winner of a jackpot valued at $50,000,000. You contact the lottery and they make you the following offer: $25,000,000 today in a lump sum or $2.5 million a year for the next 20 years paid annually at the end of each year. Assume you can get 10% return on your investments and that no taxes will be taken out. What is the PRESENT VALUE of each option (not Future Value)?
Solution Preview
Option 1= $25,000,000 today
Present value= $25,000,000
Option 2
$2.5 million a year for the next 20 years paid annually at the end of each year.
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Solution Summary
The Present value of cash flows of two options is calculated to see which is better
... A has the highest present value (PV) e options to take to maximize the value of for each option. Interest rates are. to get the Present values of the cash flows...
... Assume that all cash flows are discounted at 12 percent ... calculate the value of the real option to wait ... the steps to calculate the expected net present value of ...
...Option Y =$1,750,000 Future Value of option Y is ... we are comparing two or more options, cash flows should be ... We should compare present value or future value of ...
... year 87000 98300 Interest rate 14% Notes IF option 1 is ... below, 2) Use NPV function in Excel Options 1 2 Year Discounting factor Cash flows Present value of ...
... the net present values of these options be compared ... into account in the net present value analysis ... a recession, how will this affect the project's cash flows? ...
... INTERNAL RATE OF RETURN IRR is the interest rate if used to discount the option's cash flows would result to a net present value that is equal to ZERO. ...
... $0 =$1,500,000 -$1,500,000 Net Present value of cash flows to the ... July 80 139 8.05 43 3.90 October 80 60 10.20 11 3.65 a) Are the call options in the ...
... of the cash flows ("Real Options," 2008). Option valuation estimates the balanced market value of a project, but it requires a good estimate of the net present...
... is the Net Present Value of the expansion option? ... Since the cash flows are the same over 5 years we ... PVIFA factor to calculate NPV PVIFA= Present Value Interest ...
