Winning the Lottery: Financial Management
The problem with a quick payout after winning the lottery is that there is a desire to implement all the projects you had previously thought of after you win. The sum of one million seems significant, but you can quickly lose it if you do not take a sensible approach to spend it (Munteanu & Bacula, 2017). I would use the following scheme: first, get 20% of the amount, then get paid the remaining amount evenly over five months. Having start-up capital would allow me to plan my projects with the remaining amount in mind. I will put part of the amount in the bank with interest to save, and the other part I will use to create the first phase of the project. As a result, I will get more than the original amount, and the interest will be about 20-30%, depending on the bank and the selected shares.
My decision is based on several TVM factors: period, present value, and future value. The period will be five months, during which I will be paid the entire amount. After each payout, the amount will be put in the bank with interest, which will allow for an increase in profits over the year. The present value will be 200 000$, and this amount will be enough to pay the current loan bills and cover some business debt. About 30% will be used for debt financing, and 10% will go to equity. In the end, this distribution will also help increase profits (Munteanu & Bacula, 2017). The future value will far exceed the lottery winnings, regardless of taxation. In addition, the future value will continue to accumulate, thereby generating an overall high profit.
Munteanu, I. & Bacula, M. (2017). The time value of money in financial management. “Ovidius” University Annals, Economic Sciences Series, 7(2).