Comparing Options Using Present Value Concepts
After completing a long and successful career as senior vice president for a large bank, you are preparing for retirement. After visiting the human resources office, you have found that you have several retirement options you can receive:
a.An immediate cash payment of $1 million.
b.Payment of $60,000 per year for life (your remaining life expectancy is 20 years).
c.Payment of $50,000 per year for 10 years and then $70,000 per year for life (this option is intended to give you some protection against inflation).
You believe you can earn 8 percent on your investments.
Required:
1.Calculate the net present value of each option.
2.Explain which option you prefer and why.
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