Julie has just retired. Her company’s retirement program has two options as to h
ID: 2470782 • 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 $143,000 immediately as her full retirement benefit. Under the second option, she would receive $22,000 each year for six years plus a lump-sum payment of $62,000 at the end of the six-year period.
Calculate the present value for the following assuming that the money can be invested at 12%. (Round discount factor(s) to 3 decimal places.)
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 $143,000 immediately as her full retirement benefit. Under the second option, she would receive $22,000 each year for six years plus a lump-sum payment of $62,000 at the end of the six-year period.
Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using tables.Explanation / Answer
Answer to the Question
PV UNDER OPTION-1
Lump amount received $143,000 and same is invested @12% return
6th Year Include Both Principal amount $143,000 and Interest.
NPV UNDER OPTION-2
It is assumed that $22,000 received at the beginning of the year.
Year Interest PVF @12% Present Value 1 17,160.00 0.893 15,321.43 2 19,219.20 0.797 15,321.43 3 21,525.50 0.712 15,321.43 4 24,108.56 0.636 15,321.43 5 27,001.59 0.567 15,321.43 6 173,241.78 0.507 87,769.68 Present Value 164,376.82Related Questions
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