iPad 2:46 PM * 99%- ezto.mheducation.com HW Chpt 11 instructions help Question 1

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iPad 2:46 PM * 99%- ezto.mheducation.com HW Chpt 11 instructions help Question 1 (of 5) Save & ExitSubmit value: 4.00 points Julie has just retired. Her company's retirement program has two options as to how retirement benefits carn be received. Under the first option, Julie would receive a lump sum of $158,000 immediately as her full retirement benefit. Under the second option, she would receive $21,000 each year for five years plus a lump-sum payment of $66,000 at the end of the five-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 12%. (Use the appropriate table to determine the discount factor(s)) Present Value of First Option Cash Flow Discount Factor = Present Valu@ Lump-sum payment Present Value of Second Option Cash Flowx x Discount Factor Present Value Annual annuity Lump-sum payment Total present value lb. If you can invest money at a 12% return, which option would you prefer? First option Second option ReferenceseBook & Resources Expanded table Difficulty: 1 Easy

Explanation / Answer

Present value of first option Cash flow PV factor Present value Lump-sum payment 158000 1 158000 Present value of first option Cash flow PV factor Present value Annual annuity 21000 3.605 75705 Lump-sum payment 66000 0.567 37422 Total present value 113127 1b First option is preferred

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