Julie has just retired. Her companys retirement program has two options as to how retirement benefits can be received. Under the first option, Julie would receive a lump sum of $135,000 immediately as her full retirement benefit. Under the second option, she would receive $18,000 each year for twelve years plus a lump-sum payment of $54,000 at the end of the twelve-year period.

Click here to view Exhibit 11B-1 and Exhibit 11B-2, to determine the appropriate discount factor(s) using tables.

Required:

1a.

Calculate the present value for the following assuming that the money can be invested at 11%. (Use the appropriate table to determine the discount factor(s).)

Present Value of First Option
	Cash Flow		Discount Factor	=	Present Value
Lump-sum payment
Present Value of Second Option
	Cash Flow		Discount Factor	=	Present Value
Annual annuity
Lump-sum payment
Total present value					$0

1b.

If you can invest money at a 11% return, which option would you prefer?

	First option
	Second option