Question

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 $141,000 immediately as her full retirement benefit. Under the second option, she would receive $20,000 each year for 8 years plus a lump-sum payment of $60,000 at the end of the 8-year period. Click here to view Exhibit 7B-1 and Exhibit 7B-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 9%. 1-b. If she can invest money at 9%, which option would you recommend that she accept? Complete this question by entering your answers in the tabs below. Reg 1A Reg 1B Calculate the present value for the following assuming that the money can be invested at 9%. (Round your final answer to the nearest whole dollar amount.) Option 1 Option 2 Present value

Answer 1

1 Option 1 $ 1,41,000 2 3 Option 2 4 Particulars Present Value 5 20000 for 8 years @9% $ 1,10,700 6 60000 @ end of 8th year $ 30,120 7 Total $ 1,40,820 8

A B 1 Option 1 141000 3 Option 2 4 Particulars Present Value 5 20000 for 8 years @9% =20000*5.535 6 60000 @ end of 8th year =60000*0.502 7 Total =SUM(B5:36) 8

I would recommend her to accept First option as she is getting more money from the first Lump sum