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Conrad has just retired. His company’s retirement program has three options as to how retirement benefits...

Conrad has just retired. His company’s retirement program has three options as to how retirement benefits can be received. Under the first option, Conrad would receive a lump sum of $200,000 immediately as his full retirement benefit. Under the second option, he would receive $16,000 each year for 20 years plus a lump-sum payment of $65,000 at the end of the 20-year period. Required: If he can invest money at 7%, Use present value analysis to determine the following:

1. What is the present value of the first option?

2. For the second option, what is the present value of “$16,000 each year for 20 years”?

3. For the second option, what is the present value of “a lump-sum payment of $65,000 at the end of the 20-year period.

4. What is the present value of the second option? (Hint: the sum of question 2-3)

5. Which option would you recommend that he accept?

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