Answered: what is the present value of this…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Imprudential, Inc., has an unfunded pension liability of $414 million that must be paid in 19 years. To assess the value of the firm’s stock, financial analysts want to discount this liability back to the present.
If the relevant discount rate is 7.9 percent, what is the present value of this liability?

Expert Solution

Step 1

Here the Future value of the liability that has to be paid over a period of 19 yrs is. :- $414

time period is :- 19 years

interest rate (i) :-7.9% or 0.079

Now the formula for calculating the present value from future value is :-

PV = FV / (1+i)^t

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