Jamie Sorensen was given the assignment of finding suitable office space for her company. She found a great office in an upscale office park that requires a three-year lease. There are two options to pay for this lease. The first is to pay $160,000 on the first day of the lease, and the second is to make quarterly payments of $15,800 for three years starting three months from today. She must decide which of the two payment methods is the most economical for her company. Jamie knows the firm usually borrows money at 12 percent interest.
Which payment plan should Jamie select? Why?
Ray Corporation, a small manufacturing firm, wants to establish a pension fund for its 10 employees who range from 28 to 51 years of age. Ray wants each employee who retires from the firm at age 65 to receive an annual pension on the retirement date that is 70 percent of the employee’s annual wage at retirement.
What factors must Ray Corporation take into consideration to determine how much the firm must contribute to the pension fund each year to meet the terms of its retirement plan?
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