Question

As a result of a slowdown in operations, 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. Use present value tables to compute the present value of the complete package, 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)

Answer 1

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.