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Lando Calrissian just won the lottery and is trying to decide between the options of receiving the annual cash flow payment option of $330,000 per year for 25 years beginning today, or receiving one lump-sum amount today. Lando can earn 4% investing this money. At what lump-sum payment amount would he be indifferent between the two alternatives

Respuesta :

Answer:

the lump-sum payment amount would he be indifferent between the two alternatives is $5,361,497.79

Explanation:

The computation of the lump-sum payment amount would be shown below:

= Annual cash flow per year × present value of annuity due factor at 4% for 25 years

= $330,000 × 16.246963

= $5,361,497.79

Refer the present value of annuity due factor table for the same

hence, the lump-sum payment amount would he be indifferent between the two alternatives is $5,361,497.79

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