Question

The Caldwell Herald newspaper reported the following story: Frank Ormsby of Caldwell is the state’s newest millionaire. By choosing the six winning numbers on last week’s state lottery, Mr. Ormsby has won the week’s grand prize totaling $1.04 million. The State Lottery Commission has indicated that Mr. Ormsby will receive his prize in 20 annual installments of $52,000 each.

Required:

1. If Mr. Ormsby can invest money at an 11% rate of return, what is the present value of his winnings? (Round discount factor to 3 decimal places.)

Net Present Value

Present Value x Factor Value = Net Present Value

(?) x (?) = Net Present Value

Answer 1

Net present value =Present value*factor

NPV =52000*7.963

NPV =414076