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.