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 $134,000 immediately as her full retirement benefit. Under the second option, she would receive $28,000 each year for five years plus a lump-sum payment of $53,000 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).)

Explanation / Answer

Present value of first option CF DF Present value Lump-sum payment    134,000 1              134,000 Present value of Second option CF DF @12% Present value Annual annuity      28,000 3.6048              100,934 Lump-sum payment      53,000 0.5674                30,072 Total present value              131,007

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