Shuai is 43 years old and has been asked to accept early retirement from his company. The company offered Shuai three alternative compensation packages to induce Shuai to retire: 1. $231,000 cash payment to be paid immediately. 2. A 20-year annuity of $22,000 beginning immediately. 3. A 10-year annuity of $75,000 beginning on July 1 of the year Shuai reaches age 53 (after 10 years). Required: Determine the present value of each alternative, assuming that Shuai is able to invest funds at a 8% rate. Whic alternative should he choose?

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
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Chapter1: Investments: Background And Issues
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Shuai is 43 years old and has been asked to accept early retirement from his company. The company offered
Shuai three alternative compensation packages to induce Shuai to retire:
1. $231,000 cash payment to be paid immediately.
2. A 20-year annuity of $22,000 beginning immediately.
3. A 10-year annuity of $75,000 beginning on July 1 of the year Shuai reaches age 53 (after 10 years).
Required:
Determine the present value of each alternative, assuming that Shuai is able to invest funds at a 8% rate. Which
alternative should he choose?
Note: Round your final answers to nearest whole dollar amount. Use tables, Excel, or a financial calculator.
(FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1)
PV
Alternative
1
2
3
Shuai should choose Alternative 3
Transcribed Image Text:Shuai is 43 years old and has been asked to accept early retirement from his company. The company offered Shuai three alternative compensation packages to induce Shuai to retire: 1. $231,000 cash payment to be paid immediately. 2. A 20-year annuity of $22,000 beginning immediately. 3. A 10-year annuity of $75,000 beginning on July 1 of the year Shuai reaches age 53 (after 10 years). Required: Determine the present value of each alternative, assuming that Shuai is able to invest funds at a 8% rate. Which alternative should he choose? Note: Round your final answers to nearest whole dollar amount. Use tables, Excel, or a financial calculator. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) PV Alternative 1 2 3 Shuai should choose Alternative 3
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