Question

"Gail Trevino expects to receive a $640,000 cash benefit when she retires six years from today. Ms. Trevino’s employer has offered an early retirement incentive by agreeing to pay her $368,000 today if she agrees to retire immediately. Ms. Trevino desires to earn a rate of return of 12 percent. (PV of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.) Required a. Calculate the present value of the $640,000 future cash benefit. Assuming that the retirement benefit is the only consideration in making the retirement decision, should Ms. Trevino accept her employer’s offer?"

Answer 1

Present value = $324,243.92

Mrs Trevino shouldn't accept the offer.

Step-by-step explanation:

Present value is the sum of discounted cash flows.

Present value can be calculated using a financial calculator.

Cash flow each year from year 1 to 5 = 0

Cash flow in year 6 = $640,000

I = 12%

Present value = $324,243.92

The present value of $640,000 is less than $368,000, so, Mrs Trevino shouldn't accept the offer.

To find the PV using a financial calacutor:

1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.

2. After inputting all the cash flows, press the NPV button, input the value for I, press enter and the arrow facing a downward direction.

3. Press compute

I hope my answer helps you