Exhibit2 : 9. value 1.00 points Julie has just retired. Her company\'s retiremen

Question

Exhibit2 :

9. value 1.00 points 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 $130,000 immediately as her full retirement benefit. Under the second option, she would receive $19,000 each year for five years plus a lump-sum payment of $75,000 at the end of the five-year period. Click here to view Exhibit 13B-1 and Exhibit 13B-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 11%. (Round discount factor(s) to 3 decimal places.) Present Value of First Option Cash Flow Discount Factor Present Value Lump-sum payment Present Value of Second Option Cash Flow x Discount FactorPresent Value Annual annuity Lump-sum payment Total present value

Explanation / Answer

Rreq 1-a PRESENT VALUE OF FIRST OPTION CASH FLOW     * DISCOUNT FACTOR      = PRESENT VALUE Lump sum payment 130,000     * 1.000     = 130,000 PRESENT VALUE OF SECOND OPTION CASH FLOW     * DISCOUNT FACTOR      = PRESENT VALUE Annual Annuity 19000 3.696 70224 Lump-sum payment 75000 0.593 44475 Total Present value 114699 Q2. Net income before tax 380,000 Less: tax @ 30% 114000 Net income after tax 266,000 Add: Depreciation 520,000 Annual cassh inflows 786,000 Annuity factor @13% for 5 years 3.517 Present value of inflows 2764362 Less: Initial investment 2,600,000 Net present value 164,362 Net present value: $ 164,362

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