Exercise 11A-2 Basic Present Value Concepts [LO11-5]

Julie has just retired. Her companys retirement program has two options as to how retirement benefits can be received. Under the first option, Julie would receive a lump sum of $158,000 immediately as her full retirement benefit. Under the second option, she would receive $21,000 each year for five years plus a lump-sum payment of $66,000 at the end of the five-year period.

Click here to view Exhibit 11B-1 and Exhibit 11B-2, to determine the appropriate discount factor(s) using tables.

Required:
1a.	Calculate the present value for the following assuming that the money can be invested at 12%. (Use the appropriate table to determine the discount factor(s).)

1b.

If you can invest money at a 12% return, which option would you prefer?

	First option
	Second option