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Julie has just retired

Accounting Nov 30, 2020

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 $126,000 Immediately as her full retirement benefit. Under the second option, she would receive $13,000 each year for 10 years plus a lump sum payment of $52,000 at the end of the 10-year period. Click here to view Exhibit 12B-1 and Exhibit 12B-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 7%. 1-b. If she can invest money at 7%, 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 7%. (Round your final answers to the nearest whole dollar amount.) Option 1 Option 2 Present value KR 1A Req 1B

Expert Solution

1)

 

Option 1

Option 2

Present value

$126,000

$117,728

Workings:

   

Option 2:

   

Present value of $13,000 annuity

$91,312

=13,000*7.024

Present value of $52,000

$26,416

=52,000*0.508

Present value of Option 2

$117,728

 

2)

First option should be accepted as its present value is higher

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