2D1B WILCOX CORPORATION WON A SETTLEMENT IN A LAW SUIT AND WAS OFFERE...

287.

CSO: 2D1b

LOS: 2D1b

Wilcox Corporation won a settlement in a law suit and was offered four different

payment alternatives by the defendant’s insurance company. A review of interest rates

indicates that 8% is appropriate for analyzing this situation. Ignoring any tax

considerations, which one of the following four alternatives should the controller

recommend to Wilcox management?

a.

$135,000 now.

b.

$40,000 per year at the end of each of the next four years.

c.

$5,000 now and $20,000 per year at the end of each of the next ten years.

d.

$5,000 now and $5,000 per year at the end of each of the next nine years, plus a

lump-sum payment of $200,000 at the end of the tenth year.