Problem 5-14 (Algo) Deferred annuities; pension obligation [LO5-8, 5-10]
Three employees of the Horizon Distributing Company will receive annual pension payments from the company when they retire. The
employees will receive their annual payments for as long as they live. Life expectancy for each employee is 15 years beyond
retirement. Their names, the amount of their annual pension payments, and the date they will receive their first payment are shown
below: (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)
Annual Date of First
Employee Payment Payment
Tinkers $24,000 12/31/24
Evers 29,000 12/31/25
Chance 34,000 12/31/26
Required:
1. Compute the present value of the pension obligation to these three employees as of December 31, 2021. Assume a 12% interest
rate.
2. The company wants to have enough cash invested at December 31, 2024, to provide for all three employees. To accumulate
enough cash, they will make three equal annual contributions to a fund that will earn 12% interest compounded annually. The first
contribution will be made on December 31, 2021. Compute the amount of this required annual contribution.
(For all requirements, Do not round intermediate calculations. Round your final answers to nearest whole dollar amount.)
Employee PV
1. Tinkers $ 130,309
Evers
Chance
2. Amount of annual contribution
