As a result of a slowdown in operations, Tradewind Stores is offering employees

Question

As a result of a slowdown in operations, Tradewind Stores is offering employees who have been terminated a severance package of $108,000 cash paid today; $108,000 to be paid in one year; and an annuity of $37,000 to be paid each year for 8 years. What is the present value of the package assuming an interest rate of 10 percent? (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1.) (Use appropriate factor(s) from the tables provided. Round the final answer to nearest whole dollar.) Present Value

Explanation / Answer

PV of 108000 today = 108000

PV of 108000 after one year = 108000*pvif(1yr, 10%) = 108000*0.909091 = 98181.83

PV of 37000 each year for 8 years = 37000*pvifa(8yrs, 10%) = 37000*5.334926 = 197392.26

total present value = 403574

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