Joe Masters has received a job offer from a large wine retailer. His base salary will...

Joe Masters has received a job offer from a large wine retailer. His base salary will be $136,500. He will receive his first annual salary payment one year from the day he begins work. He will also get an immediate $50,000 bonus for joining the company. His salary will grow at 5 percent each year, starting after the first year. Mr. Masters is expected to work for 15 years. What is the present value of the offer if the discount rate is 7.1 percent?

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Expert Solution

Let's arrange the cash flows that Joe Masters will be receiving from the offer and then calculate the Present Value.

The picture below is the extract of excel that calculates the present value of all the payments receivable.

We can also compute the NPV in excel using the NPV function. What you need to just keep in mind is that the first payment received today need not be used to compute the PV. It will be added to the PV derived from Year 1 onwards.

jeff jeffy answered 2 years ago

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