Julie has just retired. Her company’s retirement program has two options as to how retirement benefits...

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. Required: 1a. 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.) 1b. If you can invest money at a 12% return, which option would you prefer? First option Second option

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Expert Solution

YEAR	CASH FLOW	PRESENT VALUE FACTOR @ 12%	DISCOUNTED CASH FLOW
1	14000	0.8928	12499.2
2	14000	0.7972	11160.8
3	14000	0.7117	9963.8
4	14000	0.6355	8897
5	14000	0.5674	7943.6
6	14000	0.5066	7092.4
7	14000	0.4523	6332.2
8	14000	0.4039	5654.6
9	14000	0.3606	5048.4
10	14000	0.322	4508
11	14000	0.2875	4025
12	14000	0.2567	3593.8
13	14000	0.2292	3208.8
14	14000	0.2046	2864.4
15	14000	0.1827	2557.8
16	14000	0.1631	2283.4
17	14000	0.1456	2038.4
18	14000	0.13	1820
19	14000	0.1161	1625.4
20	14000	0.1037	1451.8
20	60000	0.1037	6222
			110790.8

By choosing alternative 1 the present value of amount received will be = $150000

By choosing alternative 2 the present value of amount received will be = $110790

By this we can say that the ALTERNATIVE 1 IS BETTER THAN ALTERNATIVE 2

ekkarill92 answered 1 year ago

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