Computing the Present Value of a Complex Contract
As a result of a slowdown in operations, Mercantile Stores is offering employees who have been terminated a severance package of $118,000 cash, another $129,000 to be paid in one year, and an annuity of $27,500 to be paid each year for six years beginning in one year. What is the present value of the package, assuming an interest rate of 5 percent?
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