A lottery winner can take $6 million now or be paid $600,000 at the end of each of the next 16 years
The winner calculates the internal rate of return (IRR) of taking the money at the end of each year and, estimating that the discount rate across this period will be 4%, decides to take the money at the end of each year. Was her decision correct?
A) Yes, because it agrees with the Net Present Value rule.
B) Yes, because it agrees with the payback rule.
C) Yes, because it agrees with both the Net Present Value rule and the payback rule.
D) Yes, because it disagrees with the Net Present Value rule.
Answer: A
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