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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. Round to the nearest dollar

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Answer:

$487,137

Explanation:

first determine the Present Value factors using the PV tables, so we got 0.925926 and 9.818147

the first 100,000 since its cash already, same is the present value

the second 100,000 since to be received after one year, multiply by 0.925926 = 92592.60

the 30,000 to be received every year for 20 years, assuming at the end of each year, multiply this by 9.818147 = 294,544.42

Add all these items to come up with $487,137.02.

To the nearest dollar $487,137

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