Natalie Bigelow

ePortfolio TVM Assignment Acct2310

Analysis:
1. A How was the amount of the lump-sum determined? Create a calculation that might help
Johns sister understand.

This lump sum was determined by using the present value of an ordinary annuity table to
make the calculations. This table was used because we know the amount that would have
most likely been paid throughout the year and not just in one payment at the beginning of
the year. The 7% discount rate and the 25 years until retirement to find the number
11.65358 on the PVA table. The 11.65358 was multiplied by $200,000 to give the
settlement price of $2,330,716.

The formula to determine the PVA value is

In this case the formula would be 1[(1-(1+.07)^-25)/.07]=11.65358

$200,000 * 11.65358 = $2,330,716

2. Was the settlement fair? Explain. See grading rubric at end of assignment for grading
details.
From my understanding the settlement was not fair. Most likely the Smiley's salary would
have increased over time which was not taken into calculations or the inflation that will
also take place over time. I am also curious of how the 7% discount was calculated
because I feel as if a 7% discount is a large discount. There is no way to predict the future
 so there is no way to know how Smiley's salary would have functioned over the next 25
years. From my understanding the settlement was not fair because not enough factors
were used to determine the lump-sum amount.

3. Write a brief reflection on how this assignment fits into your program and prepares you
for your field of study.

This assignment fits perfectly into my program of study as I am finishing my associate's

in business and continuing with a Bachelor's in Accounting. Time value of money and
using annuity tables is something that I will use for the rest of my accounting career and
this assignment gave me a good base of how to use it and calculate it in a real life
scenario. As I continue in my accounting education this is an assignment I can look back
at and refer to as evidence of my understanding and kills and also as a refresher if I need
to calculate this in real life circumstances.