XYZ Inc. operates a “gaming” operation across Canada and the United States. XYZ utilizes a RRR of 10% in evaluating its long-term capital investment decisions.
On January 1, 2022, ZYZ offered a $200,000.00 “Power-Ball Bingo” in Canada under the following terms and conditions.
The winner of the Bingo has to choose from two mutually exclusive Options:
Option# 1:
The winner will receive $200,000 at the end of Year 10 ..
Option 2:
The winner will receive $120,000.00 on January 1, 2022.
Required:
- Assuming you are the winner and that you have a RRR of 6%, what Option would you choose and why? [3.5 Marks]
- At what RRR would you be indifferent to relative to Both Options? Why? [3.5 Marks}
