the IRR (interest) on the 20 x $10.65 m payments is 9.15%.
So the lump sum would have to earn 9.15% after tax to equal the value of the payments.
I am assuming 20 equal pmts received at the beginning of the year. The 9% seems outrageously high ... meaning the lump sum given is much too low. Either:
a. the imformation is wrong
b. or taking the lump sum is dumb.
N=20, beginning of year ... so final pmt is 19 years from now.
Pmt= -10.65 million
NPV = 105 million
Interest Rate = 9.15%
I agree, that in another time, taking the lump sum would’t make sense. Especially, with the annuity, you could make mistakes for the first couple of years without worrying because you’d have another cheque coming.
But since I have absolutely no faith in most states being financially solvent, with their pension payouts or infrastructure, I’d rather have the bird in the hand than a promise in the bush.
I don’t want to line up as a creditor at any point in time.
I think I could live almost as well on $105 million (subtract taxes) than I could on $213 million (minus taxes).
I think that I’d be dumb enough to settle for $105 million up front. At that point, I don’t think I’d be too concerned about the difference. :=)