You have just won the state lottery and have two choices for collecting your winnings. You can collect $106,000 today or receive $21,000 at the end of each year for the next seven years. A financial analyst has told you that you can earn 9% on your investments.

You have just won the state lottery and have two choices for collecting your winnings. You can collect $106,000 today or receive $21,000 at the end of each year for the next seven years. A financial analyst has told you that you can earn 9% on your investments.
 

1. Calculate the present value of both the options (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use the appropriate factor(s) from the tables provided. Round your answers to nearest whole dollar.)

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Explanation:

1.

Present value of annuity:  $21,000 × 5.03295 = $105,692

2.
 

Because the present value of the annuity is less than the immediate cash payment of $106,000, you should select the immediate cash payment.