Julie has just retired. Her company’s retirement program has two options as to h

Question

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 $143,000 immediately as her full retirement benefit. Under the second option, she would receive $22,000 each year for six years plus a lump-sum payment of $62,000 at the end of the six-year period. Click here to view Exhibit 13B-1 and Exhibit 13B-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%. (Round discount factor(s) to 3 decimal places.)

Explanation / Answer

Option 1: Lumpsome receipt of $143000 Option 2: ( Amount $ ) Year Cashflow PV Factor @ 12% PV of cash flow 0 22000                        1.000                   22,000 1 22000                        0.893                   19,643 2 22000                        0.797                   17,538 3 22000                        0.712                   15,659 4 22000                        0.636                   13,981 5 22000                        0.567                   12,483 6 62000                        0.507                   31,411 PV of Cashflows               1,32,716 Since Option 1 is more benefecial as the cashflow is more from that. Julie is recommended receive a lump sum of $143,000 immediately as her full retirement benefit

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