66% Wed Apr 47:59 PM a -Katiana C ? | ? secure l https://newconnect.mheducation.
ID: 2510852 • Letter: 6
Question
66% Wed Apr 47:59 PM a -Katiana C ? | ? secure l https://newconnect.mheducation.com/flow/connect.h.. ? | : × UD padot-1.jpg (12?D fLofJjpg (1167. X Connect Chp 6 Homework Saved Help Save & Exit Submit 2 Check my work 7 John Roberts is 52 years old and has been asked to accept early retirement from his company. The company has offered John three alternative compensation packages to induce John to retire: (FV of $1. PV of $1. FVA of $1. PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) 16 points eBook1 $183,000 cash payment to be paid immediately. 2. A 18-year annuity of $19,000 beginning immediately. 3. A 10-year annuity of $53,000 beginning at age 62. Print References Required: Determine the present value, assuming that he is able to invest funds at a 6% rate, which alternative should John choose? Alternative PV John should choose Prev 7of 7Explanation / Answer
CALCULATION OF THE PRESENT VALUE OF THE ALL ALTERNATIVES OPTION 1: Answer = 1) Present value of the $ 183,000 cash paid immediately have the PV = $ 183,000 Present value = $183,000 Option 2: Present value of the annuity for $ 19,000 paid in beginning of the year years Cash Flow PVF @ 6% Present Value 1 $ 19,000 1.0000 $ 19,000 2 $ 19,000 0.9434 $ 17,925 3 $ 19,000 0.8900 $ 16,910 4 $ 19,000 0.8396 $ 15,953 5 $ 19,000 0.7921 $ 15,050 6 $ 19,000 0.7473 $ 14,198 7 $ 19,000 0.7050 $ 13,394 8 $ 19,000 0.6651 $ 12,636 9 $ 19,000 0.6274 $ 11,921 10 $ 19,000 0.5919 $ 11,246 11 $ 19,000 0.5584 $ 10,610 12 $ 19,000 0.5268 $ 10,009 13 $ 19,000 0.4970 $ 9,442 14 $ 19,000 0.4688 $ 8,908 15 $ 19,000 0.4423 $ 8,404 16 $ 19,000 0.4173 $ 7,928 17 $ 19,000 0.3936 $ 7,479 18 $ 19,000 0.3714 $ 7,056 Total $ 2,18,068 Present Value of the option 2 = $ 2,18,068 Present value of the annuity for $ 53,000 paid in beginning of the year years Cash Flow PVF @ 6% Present Value 1 1.0000 $ - 2 0.9434 $ - 3 0.8900 $ - 4 0.8396 $ - 5 0.7921 $ - 6 0.7473 $ - 7 0.7050 $ - 8 0.6651 $ - 9 0.6274 $ - 10 0.5919 $ - 11 $ 53,000 0.5584 $ 29,595 12 $ 53,000 0.5268 $ 27,920 13 $ 53,000 0.4970 $ 26,339 14 $ 53,000 0.4688 $ 24,848 15 $ 53,000 0.4423 $ 23,442 16 $ 53,000 0.4173 $ 22,115 17 $ 53,000 0.3936 $ 20,863 18 $ 53,000 0.3714 $ 19,682 19 $ 53,000 0.3503 $ 18,568 20 $ 53,000 0.3305 $ 17,517 Total $ 2,30,890 Present Value of the option 3 = $ 2,30,890 Answer: Alternatives PV 1 $ 1,83,000 2 $ 2,18,068 3 $ 2,30,890 John shoul choose the option 3 becase it have the highest Present value
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.