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Calculating the Value of a Growing Perpetuity: Pensions

CORPFN-YY683Y

A company is eliminating the pension plan for its employees by purchasing growing perpetuities for each of its 200 employees. The growing perpetuity has an annual cash flow of 12,000 dollars per employee per year. The growth rate for the annuity is indexed to an average cost of living increase of 4% annually, while the discount rate of the fund is 6% annually.

What is the cost of to purchase these 200 growing perpetuities?

A

120,000,000

B

600,000

C

60,000,000

D

40,000,000