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 $155,000 immediately as her full retirement benefit. Under the second option, she would receive $18,000 each year for ten years plus a lump-sum payment of $63,000 at the end of the ten-year period.

Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using tables.

Present Value of First Option

Cash Flow x Discount Factor = Present Value

Lump-sum payment

Present Value of Second Option

Cash Flow x Discount Factor = Present Value

Annual annuity

Lump-sum payment

Total present value

1b.

If you can invest money at a 8% return, which option would you prefer?

	First option
	Second option