Suppose you win a small lottery and you are given the following choice: You can receive (1)an immediate payment of $10,000 or (2)two annual payments, each in the amount of $5,200,with the first payment coming one year from now, and the second payment coming two years from now. You would choose to take the immediate payment of $10,000 if the interest rate is:. A) 2 percent, but not if the interest rate is 1 percent.
B) 3 percent, but not if the interest rate is 2 percent.
C) 4 percent, but not if the interest rate is 3 percent.
D) 5 percent, but not if the interest rate is 4 percent.

B) 3 percent, but not if the interest rate is 2 percent.

Explanation:

Assuming the interest rate is 1%, the present value of the two year payments is;

= (5,200 / ( 1 + 1%)) +  (5,200 / ( 1 + 1%)²)

= $10,246.05

Assuming rate is 2%.

= (5,200 / ( 1 + 2%)) +  (5,200 / ( 1 + 2%)²)

= $10,096.12

Assuming rate is 3%

= (5,200 / ( 1 + 3%)) +  (5,200 / ( 1 + 3%)²)

= $9,950.04

At 3%, the present value of the annual payment is less than the value you could be paid today so you would take the $10,000 instead.

At 2% however, the present value of the annual payments is more than the value you could collect today so you would not take the $10,000.

both are integral parts of a corporate balance sheet. the cash flow statement, or statement of cash flows, measures the sources of a company's cash and its uses of cash over a specific time period. the income statement measures a company's financial performance, such as revenues, expenses, profits or losses over a specific time period (in fact, it's sometimes called a statement of financial performance).

a cash flow statement shows exactly how much money a company has received and how much it has spent, traditionally over a period of one month. it captures the current operating results and changes on the balance sheet, such as increases or decreases in accounts receivable or accounts payable, and does not include noncash accounting items such as depreciation and amortization. the cash flow generally comes from revenue received as a result of business activity, but it may be augmented by funds available as a result of credit. a cash flow statement is used to determine the short-term viability and liquidity of a company, specifically how well it is positioned to pay its bills and vendors.

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