Question

Imprudential, Inc., has an unfunded pension liability of $578 million that must be paid in 20 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 7.1 percent, what is the present value of this liability? (Enter your answer in dollars not in millions, e.g., 1,234,567. Do not round intermediate calculations and round your final answer to 2 decimal places, e.g., 32.16.) Present value $

Answer 1

$146,601,502.64

Step-by-step explanation:

Preparation of the present value of this liability

Using this formula

PV = FV / (1 +r)t

Where,

FV=$578,000,000

r=(1+0.071)=(1.071)

t=20 years

Let plug in the formula

PV = $578,000,000 / (1+0.071)^20

PV = $578,000,000 / (1.071)^20

PV = $578,000,000 / 3.942660815715

PV = $146,601,502.64

Therefore the present value of this liability will be $146,601,502.64