Business, 04.10.2019 22:20 ulilliareinhart2

John roberts is 55 years old and has been asked to accept early retirement from his company. the company has offered john three alternative compensation packages to induce john to retire: (fv of $1, pv of $1, fva of $1, pva of $1, fvad of $1 and pvad of $1) (use appropriate factor(s) from the tables provided.) 1.$180,000 cash payment to be paid immediately.2. a 20-year annuity of $16,000 beginning immediately.3. a 10-year annuity of $50,000 beginning at age 65. required: determine the present value, assuming that he is able to invest funds at a 7% rate, which alternative should john choose? (round your final answers to nearest whole dollar amount

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Answer from: carsengilbert

The best alternative will be of 180,000 today.

Explanation:

We calculate the present value of the second and third alternatives and compare with the cash received today:

.2. A 20-year annuity of $16,000 beginning immediately

$C \times \frac{1-(1+r)^{-time} }{rate} = PV\\$

C16,000

time20

rate0.07

$16000 \times \frac{1-(1+0.07)^{-20} }{0.07} = PV\\$

PV$169,504.2279

3.- A 10-year annuity of $50,000 beginning at age 65.

$C \times \frac{1-(1+r)^{-time} }{rate} = PV\\$

C $ 50,000

time10 years

rate0.07

$50000 \times \frac{1-(1+0.07)^{-10} }{0.07} = PV\\$

PV$351,179.0770

This start at age 65 currently he's 55 so we bring it to present:

$\frac{Maturity}{(1 + rate)^{time} } = PV$

Maturity $ 351,179.08

time 10 years

rate 0.07

$\frac{351179.07704663}{(1 + 0.07)^{10} } = PV$

PV 178,521.64

As non of the alternatives is better than 180,000 today we pick this alternative.

Answer from: hadwell34

John Roberts should take the lump sum of $180 000

Explanation:

option 1

lump sum = $180 000

option 2

Present Value = P(1-(1+r)^-n)/r

Present Value = 16000(1-(1+0.07)^-20)/0.07

Present Value = 169504.22789 = 169504.23

The present value of option 2 = $169504

option 3

Present Value = P(1-(1+r)^-n)/r

Present Value = 50000(1-(1+0.07)^-10)/0.07

present value (at age 65) = 351179.07643

the annuity of option 3 will start in future when john is 65 years old. the present value of $ 35179.07643 is the present of the annuity at the age of 65. john is 55 years old,We need to discount the present value of $ 35179.07643 to determine how much is option 3 future annuity worth today.

Present value= 351179.07643

N = 65 - 55 =10

present value (at age 55) = (present value at 65)/(1+r)^n

present value (at age 55) = 351179.07643/(1+0.07)^10

present value (at age 55) = 178521.63491 = 178521.64

John roberts is 55 years old and has been asked to accept early retirement from his company. the com

Answer from: Quest

d. all of the above are true.

Answer from: Quest

1 all nations face the problem of scarcity because there are limited resources and unlimited wants. nations do not have enough factors of production to produce everything that their population wants. entrepreneurial resources initiate businesses to make new goods and services; labor resources produce goods and services.

2 there are four factors of production: natural resources, labor resources, capital resources, and entrepreneurial resources. natural resources are raw materials from nature that are used to produce goods. trees, water, and grains are natural resources. some natural resources, such as wheat and cattle, are renewable

3 wants

things that you do not need to have in order to survive, but would like to have

needs

things that you must have in order to survive

goods

physical products

services

tasks that a business perform for customers

resources

items that people can use to make or obtain what they need or want

determine

to settle or decide by choice of alternatives or possiblities

4 i really dont know

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