Question
Merlin, Inc. is a furniture manufacturer with 50 employees. Recently, after a long negotiation with the local labor union, the company decided to initiate a
Merlin, Inc. is a furniture manufacturer with 50 employees. Recently, after a long negotiation with the local labor union, the company decided to initiate a pension plan as part of its employee compensation plan. The plan will start January 1, 2019. 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). The following estimates have been collected
Average length of time to retirement 20 years Expected life duration after retirement 15 years Total pension payment expected each year after retirement for all employees $800,000 per year
Required: On the basis of the information above, determine the present value of the pension liability. Assume payment made at the end of the year and the interest rate to be used is 6%. Note: Present value tables are attached.
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