Julie has just retired Her companys retirement program has t

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 $150,000 immediately as her full retirement benefit. Under the second option, she would receive $14,000 each year for 20 years plus a lump-sum payment of $60,000 at the end of the 20-year period.

Calculate the present value for the following assuming that the money can be invested at 12%. (Use Microsoft Excel to calculate present values. Do not round intermediate calculations.)

Present Value of First Option

Cash Flow Present Value

Lump-sum payment$150,000

Present Value of Second Option

Cash Flow Present Value

Annual annuity

Lump-sum paymen

Total present value

First option

Second option

Solution

1a) Present value under first option :

Lump sum payments = $150000

Present value of second option :

1b) If you can invest money at a 12% return then first option should prefer.