Question

Imprudential, Inc., has an unfunded pension liability of $800 million that must be paid in 24 years. To assess the value of the firm's stock, financial analysts want to discount this liability back to the present. If the relevant discount rate is 9.0 percent, what is the present value of this liability

Answer 1

Correct answer is option e. =$101123952.6

Step-by-step explanation:

Correct answer is option e.

Calculation of Present value of pension liability

Present value = Liability amount * PVIF,24, 9%

$101123952.6

Note

-The formula for calculating the Present Value Inflow Factor (PVIF) is [1 / (1 + r)n], where “r” is Discount rate and “n” is the maturity year

Answer 2

101.12 million

Step-by-step explanation:

The present value of a future cash flow is the amount that can be invested today at a particular rate for a certain number of years to have the future cash flow

The present value of the liability

= FV × (1+r)^(-n)

= 800 × (1.09)^(-24)

= 101.12 million

The present value of this liability= 101.12 million