2.00 polnts Julie has just retired. Her company\'s retirement program has two op

Question

2.00 polnts 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 $157,000 immediately as her ful retirement benefit. Under the second option, she would receive $20,000 each year for six years plus a lump-sum payment of $65,000 at the end of the six-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 Value Lump-sum payment Present Value of Second Option Cash Flow Discount Factor Present Value Annual annuity Lump-sum payment Total present value 0

Explanation / Answer

Present Value of First Option Cash Flow X Discount Factor = Present Value Lump sum amount 157000 1 157000 Present Value of Second Option Cash Flow X Discount Factor = Present Value Annual Annuity 20000 4.111 82220 Lump Sum Amount 65000 0.507 32955 Total Present Value 85000 115175 If I could invest money at a 12% , I will prefer option 1 As the present value of option 1 is more than the option 2

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