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

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 $127,000 immediately as her full retirement benefit. Under the second option, she would receive $14,000 each year for 10 years plus a lump-sum payment of $53,000 at the end of the 10-year period.

Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using tables.

Required:

1-a. Calculate the present value for the following assuming that the money can be invested at 11%.

1-b. If she can invest money at 11%, which option would you recommend that she accept?

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ReportAnswer #1

Option 1: Total Present Value:   $127,000


Option 2: Annual Annuity:          $82,446=  14,000(5.889) Exhibit 13B_2

                Lump Sum Payment: $18,656=   53,000(0.352) Exhibit 13B_1

                Total Present Value:   $101,102= 82,446+ 18,656

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answered by: Natalie
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