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Calculating Annual Benefits

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An employer uses a final pay formula to determine retirement payouts to its employees. The annual payout is 3 percent of the average salary over the employees' last three years of service times the total years employed. Calculate the annual benefit under the following scenarios.

Year Average salary during the last three years of service.
17 $40,000
20 $47,000
22 $50,000

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Solution Summary

This solution calculates the annual retirement payouts to employees for the three scenarios.

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The management of your company is considering adding a SO2 scrubber unit to your present plant to remove SO2 from stack gases, and you have conceived four designs to accomplish this task. Management does not believe that cleaning the gas just to reduce air pollution is worthwhile unless the government forces this. However, management would make the investment if more than a l0% annual rate of return on the investment can be earned (before taxes) by SO2 savings. Assume that your company can always invest the money and earn a l0% return (MARR = 10). The recommended system, if any, will have to "pay its own way." The life of each alternative is 10 years.

Following are the results of your research of the four designs. Which, if any, would you recommend to your management, and why?

Tot Install Annual OP Val of SO2 MKT Value At End
Cost Cost Recover Yearly of 10 Years
1 $100,000 $21,000 $41,000 $0
2 160,000 33,000 60,000 20,000
3 200,000 41,000 69,000 40,000
4 260,000 53,000 98,500 10,000

Need to calculate the PW at the MARR, IRR, and Incremental Analysis.

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