Julie has just retired. Her company’s retirement program has two options as to h
ID: 2403567 • Letter: J
Question
Julie has just retired. Her company’s retirement program has two options as to how retirement benefits can be received. Under the first option, Julie would receive a lump sum of $150,000 immediately as her full retirement benefit. Under the second option, she would receive $14,000 each year for 20 years plus a lump-sum payment of $60,000 at the end of the 20-year period.
Calculate the present value for the following assuming that the money can be invested at 12%. (Use Microsoft Excel to calculate present values. Do not round intermediate calculations.)
Present Value of First Option
Cash Flow Present Value
Lump-sum payment$150,000
Present Value of Second Option
Cash Flow Present Value
Annual annuity
Lump-sum paymen
Total present value
First option
Second option
Julie has just retired. Her company’s retirement program has two options as to how retirement benefits can be received. Under the first option, Julie would receive a lump sum of $150,000 immediately as her full retirement benefit. Under the second option, she would receive $14,000 each year for 20 years plus a lump-sum payment of $60,000 at the end of the 20-year period.
Explanation / Answer
1a) Present value under first option :
Lump sum payments = $150000
Present value of second option :
1b) If you can invest money at a 12% return then first option should prefer.
Cash flow Present value Annual annuity 14000 104572 Lump sum payment 60000 6220 Total present value 110792Related Questions
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