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Imprudential, Inc., has an unfunded pension liability of $566 million that must be paid in 25 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 5.9 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 answer to 2 decimal places, e.g., 32.16.) Present value $

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Answer:

Ans. The present value of this firm´s liability is $135.03 millions.

Explanation:

Hi, we need to use the following formula.

[tex]PresentValue=\frac{FutureValue}{(1+r)^{n} }[/tex]

Where: r= our discount rate (5.9%); n=Years to pay (25). It should look like this:

[tex]PresentValue=\frac{566}{(1+0.059)^{25} }=135.03[/tex]

So the present value of this liability is $135.03 millions.

Best of luck.

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