Question

Tom wants to retire at the end of this year (2017). His life expectancy is 5 years from his retirement. Tom has come to you, his CPA to learn how much he should deposit on December 31, 2017 to be able to withdraw $53.000 at the end of each year for the next 5 years, assuming the amount on deposit will earn 12 interest annually Round factor values to 5 decimal places, . 12512 and final answer too decimal places. 58.581) Use the below table) TABLE4 Prewnt Value of an Annuity of 1 Payments 44 6 10% 15% 98154 95233 94300093458 925939 1743 90000 90000 9285 R5057 188409 8594 RIOTORO 1702 175011 1.715541 71252169005 1.62571 277509 272025 267101262412 257210 211 24 2 44171 2011 228323 3.62990 3.54595 34651138721 131213 21972 3.16963.10245 3.03735 2.85098 4.45182 4.32948 4.21236 4.10020 1.09271 5 3.79079369590 3.60478 3:35216 524214 S0259 4917324765444 445 41552642104 4.11141 3.78448 600205 6617 21853929 5.20637 5032954 2 471220 4.56376 4.16042 6.73274 6.46321 6.209795.971M 5.746 5512511491514612 4.6764 4.46732 7.435337.10782 6.8016 6.5152362469 5.995255 752025.53705 532625 477158 8.11090 7.72173710009 702358 6.71009 6.41766614457 9 23 565022501877 8.76048 10641 767 749867 7.13996 6.805190405066 20652 5.93770 522371 910T 886325 334 7942 756 710 6.407.166.19437 5.42062 7.90378 748 710116 677 6.42355 5.58315 10 56312 864 9.20-10874547 34624778615 76669187 667817 572448 1111839 10.37966 9.71225 9.10791 859948 600 7600 7.19087681086 5.84737 1165210 1081777 10.1090940 R 17 R1125 701717.37916 697309595424 12.16567 11 27407 0.47726 9.76122 0.12164 5 436) 02155 7.54579 7.11963 6,04716 12.65930 11.68959 10.82760 10.05909 9.37180 .75561 8 20141 7.701627297612797 1313394 12.09532 TL15812 10.11560 WOR9501216492781929 736578 6.19523 1903 12.6221 11 1 00 RINIS 9155156 70133 7460146.35001 Present Value $ Ich Judy Thomas has a $2.000 over det for medical books and supplies at Joe's Bookstore. She has only $790 in her checking account and doesn't want her parents to know about this debt. Joe's tells her that she may settle the account in one of two ways since she can't pay it all now 1. Pay $790 now and $1.450 when she completes her residency. 7 years from today 2. Pay $2.00 one year after completion of residency, 8 years from today Assuming that the cost of money is the only factor in Judy's decision and that the cost of money to her is? Which alternative should she choose Round factor values to 5 decimal places final onwers to decimal places, s. 458.581) Use the below table.) 125124 and TABLE 3 Present Value of 1

Answer 1

(b)

Year	PV Factor @12% (1.12^n)
1	0.89286
2	0.79719
3	0.71178
4	0.63552
5	0.56743
Total	3.60478
Present Value
=53000*3.60478
$1,91,053

(c)

Year	PV Factor @7% (1.07^n)
1	0.93458
2	0.87344
3	0.81630
4	0.76290
5	0.71299
6	0.66634
7	0.62275
8	0.58201
Total	5.97130
Calculation of Present Value for both options:
Option-1
Year	Cash Payment	PV Factor @ 7%	PV
0	790	1	$790
7	1450	0.62275	$903
			$1,693
Option-2
Year	Cash Payment	PV Factor @ 7%	PV
8	2800	0.58201	$1,630
Thus, Judy should choose Option-2 as it has lower Present Value for her payment.