Julie has just retired. Her company’s retirement program has two options as to h
ID: 2484475 • 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 $126,000 immediately as her full retirement benefit. Under the second option, she would receive $13,000 each year for ten years plus a lump-sum payment of $52,000 at the end of the ten-year period.
Calculate the present value for the following assuming that the money can be invested at 7%. (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 $126,000 immediately as her full retirement benefit. Under the second option, she would receive $13,000 each year for ten years plus a lump-sum payment of $52,000 at the end of the ten-year period.
Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using tables.Explanation / Answer
Statement showing computations First option Particulars Cash Flow * Discount Factor = Present Value Lump Sum Payment 126,000.00 1.00 126,000.00 Statement showing computations Second option Particulars Cash Flow * Discount Factor = Present Value Annual Annuity (1-10 Year) 13,000.00 7.0234 91,304.20 Lump Sum Payment (10th year) 52,000.00 0.5083 26,431.60 Total Present Value 117,735.80 Option 1 is better
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