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Present value of cash flows of two options

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

$2.19