Fundamentals of Financial Accounting 4th Edition by Fred Phillips,Robert Libby,Patricia Libby

Exercise 10

Comparing Options Using Present Value Concepts
After completing a long and successful career as senior vice president for a large bank, you are preparing for retirement. After visiting the human resources office, you have found that you have several retirement options: (1) you can receive an immediate cash payment of $1 million, (2) you can receive $60,000 per year for life (your remaining life expectancy is 20 years), or (3) you can receive $50,000 per year for 10 years and then $70,000 per year for life (this option is intended to give you some protection against inflation). You have determined that you can earn 8 percent on your investments. Which option do you prefer and why