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Homework answers / question archive / Here is positive news as you head to the close of Block One

Here is positive news as you head to the close of Block One. You have won a secret lottery and have two different options you must decide between for taking your lottery winnings. One option (Option 1) is to take five equal payments of $5,000 with the first payment occurring today and the subsequent payments occurring annually. The other option (Option 2) is to take quarterly payments (payments every three months) that begin three months from now with an initial amount of $1,400 and subsequent payments that will increase by 1% each three months.

These quarterly payments will end four years from now. Please carefully show the work you undertake as you do the right thing in choosing between these two payment options. For your work, there is no need to consider any tax or inflation implications. Simply evaluate the cash flow options and pick the cash flow option that offers more value. For all your analysis pertaining to the cash flows for the two options, you should work with an annual rate of interest of 8%. Clearly show your work process and remember that diagrams are your friend.

2. I have another G donation situation I am considering. As you may know, the G Advanced Leadership Academy (GALA) has a capstone experiential learning activity that historically involves students competing in sailing challenges in the British Virgin Islands (BVI) during spring break of their last semester prior to graduation. I have been the Faculty Director of that leadership program for the past 12 years. It is an expensive activity and student fees associated with the sailing component do not cover all the costs. In the past, I have been fortunate enough to get some external support from outside supporters. Given the challenging financial situation we are currently in, I am thinking this may be an important time to get a donor (or I) to put her or his name on the BVI Challenge to ensure GALA has relatively stable financial footing for the upcoming five (5) years. I am thinking that outside support of $50,000 starting now that would need to grow at an annual rate of 3% for the subsequent 4 years would help dramatically. Assuming that the E Gifts and Development Office wants "named" scholarships to have funds in advance and has given an interest rate for my analysis of 4.25%, what is the total amount of money needed now to provide the five cash contributions to GALA suggested above? Be sure to show your work and remember a diagram is your friend.