Question

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

Answer 1

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

Step-by-step 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