John Roberts is 52 years old and has been asked to accept early retirement from

Question

John Roberts is 52 years old and has been asked to accept early retirement from his company. The company has offered John three alternative compensation packages to induce John to retire:

Assuming that John is able to invest funds at a 7% rate, determine the present value. (Use PV of $1,PVA of $1, and PVAD of $1) (Round "PV Factors" to 5 decimal places, intermediate and final answers to the nearest dollar amount.)

(Pls show solution. Thanks. )

John Roberts is 52 years old and has been asked to accept early retirement from his company. The company has offered John three alternative compensation packages to induce John to retire:

Explanation / Answer

a) Alternative 1:PV=$250000
Alternative 2:PV=PVAD=$22000 (11.59401)=255068
Present value of an annuity due of $1: n=21, i=7%
Alternative 3:PVA=$71000 x7.02358=$498674
Present value of an ordinary annuity of $1: n=10, i=7%
PV= $498674x.54393=$271244
Present value of $1: n=9, i=7%
2)He should choose alternative 3 as present value is highest.

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