Gail Trevino expects to receive a $630,000 cash benefit when she retires five ye
ID: 2583924 • Letter: G
Question
Gail Trevino expects to receive a $630,000 cash benefit when she retires five years from today. Ms. Trevino’s employer has offered an early retirement incentive by agreeing to pay her $369,000 today if she agrees to retire immediately. Ms. Trevino desires to earn a rate of return of 10 percent. (PV of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.)
Required
a. Calculate the present value of the $630,000 future cash benefit. Assuming that the retirement benefit is the only consideration in making the retirement decision, should Ms. Trevino accept her employer’s offer? (Round your final answer to the nearest whole dollar value.)
Explanation / Answer
The present value of the $630,000 future cash benefit = $630000 x PV10%,5
= $630,000 x 0.62092
= $391,180
The present value of $630,000 to be received 5 years from now is greater than the alternative of receiving $369,000 today. Hence, Ms. Trevino should accept her employer’s offer.
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