As a result of a slowdown in operations, Tradewind Stores is offering employees

Question

As a result of a slowdown in operations, Tradewind Stores is offering employees who have been terminated a severance package of $101,000 cash paid today; $101,000 to be paid in one year; and an annuity of $36,000 to be paid each year for 8 years. What is the present value of the package assuming an interest rate of 10 percent? (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1.) (Use appropriate factor(s) from the tables provided. Round the final answer to nearest whole dollar.)

Explanation / Answer

Total present value is 352109$

Year-Amount PVF Present value 0-101000 1 101000 1-101000 0.909 91809 2-36000 0.826 29736 3-36000 0.751 27036 4-36000 0.683 24588 5-36000 0.621 22356 6-36000 0.564 20304 7-36000 0.513 18468 8-36000 0.467 16812 Total 352109 $

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