Situation: A 70 year old employee retires from her employer with annual retirement payment received once per year of $63,000. Her remaining life expectancy is 15 years, and she has no surviving spouse At a 4% discount rate, based on the risk of her employer paying her pension and the rate of similar risk investments, what is the lump-sum value of her pension at the time of her retirement? The present value of annuity factor for n=15 and r=4% is 11.1184. Exam Aids Accounting Equation: Assets - Liabilities and Owner's Equity Expected value of division or investment: Multiply each expected outcome of an investment by the probability of the outcome. Then total the results. Intrinsic value of option: Overage of market price per share compared to exercise price multiplied by the number of shares in the option Lump sum present value of future pension payments: pension payment per period by appropriate present value of an annuity factor. (If pension payments paid quarterly, divide the discount rate by four. Use the total number of quarterly payments as n. A number of periods.) Debt to equity ratio: Total liabilities/shareholder's equity Net present value = Present value of cash inflows - Present value of cash outflows Benefit cost ratio = Present value of cash inflows Present value of cash outflows Present Value of No-Growth Perpetuity = Annual Cash Flow/Discount Rate (also known as Fixed Perpetuity) Present Value of Growth Perpetuity = Annual Cash Flow/(Discount Rate - Growth Rate) Economic Value Added (EVA) = (After-tax Operating Profit) - (Cost of the Assets to make that profit) EVA = [(EBIT (1 - tax rate)] - [WACC (Capital employed)] $667,104.00 $800,524.80 $700,459.20