Question

4.Suppose you win $10 million in a lottery. You have a choice of how you will receive your winnings. The first choice is to receive a certain lump sum today. The second choice is to receive a certain amount at the end of five years. How will you evaluate your choices to make your decision

Answer 1

Answer:

Explanation:

You have to consider interest rates and tax situations. Payments made in lump sum would attract higher interest rates than payments made in part, this will have an effect on the net present value.

If cash proceeds from payments are meant for Investments, then a lump sum payment is preferable.