4 value: 10.00 points Julie has just retired. Her company\'s retirement program

Question

4 value: 10.00 points 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 $128,000 immediately as her full retirement benefit. Under the second option, she would receive $15,000 each year for ten years plus a lump-sum payment of $54,000 at the end o the ten-year period. Click here to view Exhibit 11B-1 and Exhibit 11B-2, to determine the appropriate discount factor(s) using tables. Required: 1a. Calculate the present value for the following assuming that the money can be invested at 11%. (Use the appropriate table to determine the discount factor(s).) Present Value of First Option Cash Flow Discount Factor = Present Value Lump-sum payment Present Value of Second Option Cash Flowx Discount Factor Present Value Annual annuity Lump-sum payment Total present value lb. If you can invest money at a 11% return, which option would you prefer? First option Second option

Explanation / Answer

1a) Calculate present value of options :

1b) First option

Present value of first option Cash flow * Discount factor = Present value Lump sum payment 128000 * 1 = 128000 Present value of second option Cash flow * discount factor = Present value Annual annuity 15000 * 5.88923 = 88338.45 Lump sum payment 54000 * 0.35218 = 19017.72 Total present value 107356.17

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