Question
1.Cheyenne, Inc. is a furniture manufacturing company with 50 employees. Recently, after a long negotiation with the local labor union, the company decided to initiate
1.Cheyenne, Inc. is a furniture manufacturing company with 50 employees. Recently, after a long negotiation with the local labor union, the company decided to initiate a pension plan as a part of its compensation plan. The plan will start on January 1, 2020. Each employee covered by the plan is entitled to a pension payment each year after retirement. As required by accounting standards, the controller of the company needs to report the pension obligation (liability). On the basis of a discussion with the supervisor of the Personnel Department and an actuary from an insurance company, the controller develops the following information related to the pension plan.
Average length of time to retirement | 14 years | |
Expected life duration after retirement | 10 years | |
Total pension payment expected each year after retirement | ||
for all employees. Payment made at the end of the year. | $848,600 per year |
The interest rate to be used is 9%. Click here to view factor tables On the basis of the information above, determine the present value of the pension obligation (liability). (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 458,581.)
The present value of pension obligation (liability) |
|
2.Morgan Bogut just received a signing bonus of $1,050,800. His plan is to invest this payment in a fund that will earn 12%, compounded annually.
If Bogut plans to establish the AB Foundation once the fund grows to $2,601,739, how many years until he can establish the foundation?
3.Assume that Wal-Mart Stores, Inc. has decided to surface and maintain for 10 years a vacant lot next to one of its stores to serve as a parking lot for customers. Management is considering the following bids involving two different qualities of surfacing for a parking area of 11,200 square yards. Bid A: A surface that costs $ 5.75 per square yard to install. This surface will have to be replaced at the end of 5 years. The annual maintenance cost on this surface is estimated at 25 cents per square yard for each year except the last year of its service. The replacement surface will be similar to the initial surface. Bid B: A surface that costs $ 10.50 per square yard to install. This surface has a probable useful life of 10 years and will require annual maintenance in each year except the last year, at an estimated cost of 10 cents per square yard. Click here to view factor tables Compute present value of the bids. You may assume that the cost of capital is 10%, that the annual maintenance expenditures are incurred at the end of each year, and that prices are not expected to change during the next 10 years. (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 458,581.)
Present value of outflows for Bid A | $ | |
Present value of outflows for Bid B | $ |
Which bid should be accepted by Wal-Mart
Wal-Mart should accept Bid ABid B. |
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started