Question

Imprudential, Inc., has an unfunded pension liability of $415 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 5.2 percent, what is the present value of this liability? (Do not round intermediate calculations and enter your answer in dollars, not millions, rounded to 2 decimal places, e.g., 1,234,567.89)

Answer 1

Answer:

The present value of this liability is $150,568,214.49

Explanation:

The computation of the present value for this liability is shown below:

= Pension liability ÷ (1 + discount rate) ^ number of years

= $415,000,000 ÷ (1 + 5.2%) ^ 20 years

= ($415,000,000) ÷ (1.052 ^ 20 years)

= $415,000,000 ÷ 2.756225817

= $150,568,214.49

The discount rate of 5.2% for 20 years is 2.756225817