Juanita Martinez is ready to retire and has a choice of three pension plans. Pla
ID: 2356989 • Letter: J
Question
Juanita Martinez is ready to retire and has a choice of three pension plans. Plan A provides for an immediate cash payment of $250,000. Plan B provides for the payment of $25,000 per year for 10 years and the payment of $250,000 at the end of year 10. Plan C will pay $42,000 per year for 10 years. Juanita Martinez desires a return of 8 percent. Determine the present value of each plan. (Round present value factor calculations to 4 decimal places, e.g. 0.2525. Round all other calculations and final answer to 0 decimal places, e.g. 5,250.) Present Value Plan A $ Plan B $ Plan C $ Select the best plan.Explanation / Answer
Juanita Martinez is ready to retire and has a choice of three pension plans. Plan A provides for an immediate cash payment of $250,000.
Plan B provides for the payment of $25,000 per year for 10 years and the payment of $250,000 at the end of year 10.
Plan C will pay $42,000 per year for 10 years. Juanita Martinez desires a return of 8 percent. Determine the present value of each plan. (Round present value factor calculations to 4 decimal places, e.g. 0.2525. Round all other calculations and final answer to 0 decimal places, e.g. 5,250.) Present Value Plan A $ Plan B $ Plan C $ Select the best plan.
Plan A
Total
$250,000
Plan B
Cash Present Value
Flow Factor Total
$ 25,000 6.7101 $167752.5
250,000 .4632 115800
283552.5
Plan C
Cash Present Value
Flow Factor Total
$42,000 6.7101 $ 281824.2
Plan C should be selected as it has the highest present value.
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