Answer:
$487,137.
Explanation:
So,new are given the following data or parameters or information which is going to aid or assist us in solving this particular Question or problem.
=> "Mercantile Stores is offering to employees who have been terminated a severance package of $100,000 cash, another $100,000 to be paid in one year, and an annuity of $30,000 to be paid each year for 20 years. "
=> "assuming an interest rate of 8 percent. (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1)"
STEP ONE: determine the present value of a payment in 1 year.
Present value = face value/ (1 + rate of interest)^number of year.
Present value = 100,000/ (1 + 0.08)^1.
Present value = $294,544
STEP TWO: determine the present value in the next 20 years.
Present value in the next 20 years = 30,000/0.08 { 1 - (1 + 0.08)^-20}.
Present value in the next 20 years = $294,544.
STEP THREE: detemine the total present value.
total present value = $100,000 + $294,544 + $294,544 = $487,137.
Present value of complete package is $487,137 (Approx.)
Given that;
Future value FV = $100,000
Number of year n = 1
Rate of interest r = 8% = 0.08
Number of annuity year n = 20
Annual annuity = $30,000
Find:
Present value of complete package
Computation:
PV for 1 year payment;
PV = FV/(1+r)ⁿ
PV = 100,000/(1+0.08)¹
PV = 100,000/(1.08)
PV = $92,592.6 (Approx.)
PV for 20 year payment;
PV = [A/r][1-(1+r)⁻ⁿ]
PV = [30,000/0.08][1-(1+0.08)⁻²⁰]
PV = $294,544.4 (Approx.)
Present value of complete package = $100,000 + $92,592.6 + $294,544.4
Present value of complete package = $487,137 (Approx.)
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