A Pension Fund Pays Out $50,000 a Year in Perpetuity,based

question 38

Multiple Choice

A pension fund pays out $50,000 a year in perpetuity,based on a cost of capital of 5%,to retiring employees.Alternatively,the employee can take out a lump sum of $1 million payable immediately.The employee should choose

• A) the lump sum, because it is available now.
• B) the lump sum, because its future value is $25 million.
• C) the pension fund, because its present value is $1.25 million.
• D) the pension fund, because it offers steady payments in perpetuity.
• E) either option gives the same value over time.

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Definitions:

Managerial Mistakes

Managerial mistakes refer to errors made by managers, often due to poor decision-making, lack of information, or oversight, which can negatively impact an organization.

Competitive Activity

Actions taken by companies to gain an advantage or achieve superior performance relative to their competitors.

Interdependency

A mutual reliance between two or more entities where each depends on the others for success, resources, or support.

Strategic Planning

The process of defining an organization's strategy, or direction, and making decisions on allocating its resources to pursue this strategy, including its capital and people.