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Homework answers / question archive / Normandin Inc

Normandin Inc

Economics

Normandin Inc. has an unfunded pension liability of $575 million that must be paid in 20 years. To assess the value of the firm's stock, financial analysts want to discount this liability back to the present.

 

If the relevant discount rate is 6.8%, what is the present value of this liability? (Enter your answer in dollars, not millions of dollars. Do not round intermediate calculations and round your final answer to 2 decimal places. Omit $ sign in your response.)

 

Present value         $

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Calculation of Present Value of the Liability:

Present Value = Future Value / (1+Rate)^Number of Periods

Here,

Future Value (FV) = $575 million

Number of Periods (n) = 20 years

Relevant discount rate (r) = 6.8% = 0.068

 

Present Value = $575,000,000 / (1+0.068)^20

= $575,000,000 / 3.72756352855

Present Value = $154,256,257.63

Therefore, The present value of the the liability is $154,256,257.63

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