(presen value of annuity payments) The state Lottery's million-dollar payout provides for $1.1 million to be paid in 25 installments of $44,000 per payment. The first $44,000 payment is made immediately, and the 24 remaining $44,000 payments occur at the end of each of the next 24 years. If 11 percent is the discount rate, what is the present value of this stream of cash flows? if 22 percent is the discount rate, what is the present value of cash flows?
Present value of the cash flows at 11%
= Annual Payments x [ (PVIFA 11%, 24 Years) + 1 ]
= $44,000 x [8.348136578+ 1]
= $44,000 x 9.348136578
= $411,318.01
Present value of the cash flows at 22%
= Annual Payments x [ (PVIFA 22%, 24 Years) + 1 ]
= $44,000 x [4.507000558+ 1]
= $44,000 x 5.507000558
= $242,308.02
Note :- Here, the first payment is made immediately at the beginning of the year, Therefore, the present value annuity factor will be the present value annuity factor for 24 years plus 1 [Because the first payments is made at the beginning of the year]
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