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

ID: 2470782 • Letter: J

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.

     

Calculate the present value for the following assuming that the money can be invested at 12%. (Round discount factor(s) to 3 decimal places.)

       

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.

Explanation / Answer

Answer to the Question

PV UNDER OPTION-1

Lump amount received $143,000 and same is invested @12% return

6th Year Include Both Principal amount $143,000 and Interest.

NPV UNDER OPTION-2

It is assumed that $22,000 received at the beginning of the year.

Year Interest PVF @12% Present Value 1            17,160.00                        0.893                  15,321.43 2            19,219.20                        0.797                  15,321.43 3            21,525.50                        0.712                  15,321.43 4            24,108.56                        0.636                  15,321.43 5            27,001.59                        0.567                  15,321.43 6          173,241.78                        0.507                  87,769.68 Present Value                164,376.82