Ken Jones has just won the state lottery

The state offers the following three payout options for after-tax prize money:

1. $50,000 per year at the end of each of the next six years
2. $300,000 (lump sum) now
3. $400,000 (lump sum) six years from now

Calculate the present value of each scenario using an 8% annual discount rate. Round to nearest whole dollar.

Present value of an ordinary annuity of $1:

7% 8% 9%
1 0.935 0.926 0.917
2 1.808 1.783 1.759
3 2.624 2.577 2.531
4 3.387 3.312 3.240
5 4.100 3.993 3.890
6 4.767 4.623 4.486

Present value of $1:

7% 8% 9%
1 0.935 0.926 0.917
2 0.873 0.857 0.842
3 0.816 0.794 0.772
4 0.763 0.735 0.708
5 0.713 0.681 0.650
6 0.666 0.630 0.596

What will be an ideal response

Scenario 1: Present value of lottery payments:

Net cash Ordinary Annuity
Time inflow PV Factor Present Value
1-6 years Cash flow $50,000 4.623 $231,150

Scenario 2: Present value of lottery receipt = $300,000

Scenario 3: Present value of lottery receipt:

Net cash
Time inflow PV Factor Present Value
6th year Cash flow $400,000 0.630 $252,000