Answer:
The present value of the winnings is $19,636,295
Explanation:
A fix Payment for a specified period of time is called annuity. The discounting of these payment on a specified rate is known as present value of annuity.
The payment of $2 million starting 1 year from now for 20 years discounted at 8% is also an annuity due. The present value of the this annuity can be calculated by using following formula
PV of annuity = P x [ ( 1- ( 1+ r )^-n ) / r ]
Where
P = Annual payment = $2,000,000
r = rate of return = 8%
n = number of years = 20 years
PV of annuity = $2,000,000 x [ ( 1 - ( 1 + 0.08 )^-20 ) / 0.08 ]
PV of Annuity = $19,636,294.81
Answer:
$19.64 million
Explanation:
Present value is the sum of discounted cash flows.
Present value can be calculated using a financial calculator.
Cash flow each year from year 1 to 20 = $2 million
I = 8%
Present value = $19.64 million
To find the PV using a financial calacutor:
1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.
2. After inputting all the cash flows, press the NPV button, input the value for I, press enter and the arrow facing a downward direction.
3. Press compute
I hope my answer helps you