A firm hires a 27-year-old MBA at a salary of $85,000 for the first year. It also agrees to provide a pension upon retirement at age sixty-five and estimates that the present value of that pension is $150,000. What forecasts did management have to make to estimate this value? What factors determine how much of the pension cost is recognized as an expense at the end of the employee’s first year of service? As a financial analyst, what questions would you raise with the firm’s CFO about its pension costs?

 

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