Smokey Sims is 60 years old and has been asked to accept early retirement from his company. The company has offered three alternative compensation packages to induce Smokey to retire:
1.$400,000 cash payment to be paid immediately.
2. A 15-year annuity of $40,000 beginning immediately.
3. A 15-year annuity of $45,000 beginning at age 65.
Required:
Which alternative should Smokey choose assuming that he is able to invest funds at a 6% rate?