Problem

Julie has just retired. Her company's retirement program has two options as to how retirement benefits can be received. Under the first option, Julie would receive a lump sum of $140,000 immediately as her full retirement benefit. Under the second option, she would receive $27,000 each year for five years plus a lump-sum payment of $59,000 at the end of the five-year period.

Required:

1a. Calculate the present value for the following assuming that the money can be invested at 12%. (Use the appropriate table to determine the discount factor(s).)

1b. If you can invest money at a 12% return, which option would you prefer?
First option
Second option