In: Finance
You have just been offered a job. Your base salary will be $90,000 per year and the first year’s annual salary will be received one year from the day you start working. You receive a bonus immediately of $12,500. Your salary will grow 4 percent per year and you will receive a bonus of 10 percent of your salary. You expect to work 30 foryears. Your discount rate is 11 percent. What is the present value of your offer?
Group of answer choices
A. $1,428,726.78
B. $1,427,488.04
C. $1,433,232.96
Year | Salary this year(A) | Growth factor(B) | Salary next year C= (A)*(B) | Bonus( 10 % of years salary for all years other than 0) (D) | Total cash flow E= (A+D) | Discount factor (F) | PV of cash flow (E/F) |
0 | 12500 | 12500 | 1 | 12500 | |||
1 | 90000 | (1+0.04) | 93600 | 9000 | 99000 | 1.11 | 89189.2 |
2 | 93600 | (1+0.04) | 97344 | 9360 | 102960 | 1.2321 | 83564.7 |
3 | 97344 | (1+0.04) | 101237.76 | 9734.4 | 107078 | 1.36763 | 78294.8 |
4 | 101238 | (1+0.04) | 105287.27 | 10123.78 | 111362 | 1.51807 | 73357.3 |
5 | 105287 | (1+0.04) | 109498.76 | 10528.73 | 115816 | 1.68506 | 68731.2 |
6 | 109499 | (1+0.04) | 113878.71 | 10949.88 | 120449 | 1.87042 | 64396.8 |
7 | 113879 | (1+0.04) | 118433.86 | 11387.87 | 125267 | 2.07616 | 60335.7 |
8 | 118434 | (1+0.04) | 123171.21 | 11843.39 | 130277 | 2.30454 | 56530.8 |
9 | 123171 | (1+0.04) | 128098.06 | 12317.12 | 135488 | 2.55804 | 52965.8 |
10 | 128098 | (1+0.04) | 133221.99 | 12809.81 | 140908 | 2.83942 | 49625.6 |
11 | 133222 | (1+0.04) | 138550.87 | 13322.2 | 146544 | 3.15176 | 46496 |
12 | 138551 | (1+0.04) | 144092.9 | 13855.09 | 152406 | 3.49845 | 43563.8 |
13 | 144093 | (1+0.04) | 149856.62 | 14409.29 | 158502 | 3.88328 | 40816.6 |
14 | 149857 | (1+0.04) | 155850.88 | 14985.66 | 164842 | 4.31044 | 38242.6 |
15 | 155851 | (1+0.04) | 162084.92 | 15585.09 | 171436 | 4.78459 | 35830.9 |
16 | 162085 | (1+0.04) | 168568.31 | 16208.49 | 178293 | 5.31089 | 33571.3 |
17 | 168568 | (1+0.04) | 175311.04 | 16856.83 | 185425 | 5.89509 | 31454.2 |
18 | 175311 | (1+0.04) | 182323.49 | 17531.1 | 192842 | 6.54355 | 29470.6 |
19 | 182323 | (1+0.04) | 189616.43 | 18232.35 | 200556 | 7.26334 | 27612.1 |
20 | 189616 | (1+0.04) | 197201.08 | 18961.64 | 208578 | 8.06231 | 25870.8 |
21 | 197201 | (1+0.04) | 205089.13 | 19720.11 | 216921 | 8.94917 | 24239.3 |
22 | 205089 | (1+0.04) | 213292.69 | 20508.91 | 225598 | 9.93357 | 22710.7 |
23 | 213293 | (1+0.04) | 221824.4 | 21329.27 | 234622 | 11.0263 | 21278.5 |
24 | 221824 | (1+0.04) | 230697.37 | 22182.44 | 244007 | 12.2392 | 19936.6 |
25 | 230697 | (1+0.04) | 239925.27 | 23069.74 | 253767 | 13.5855 | 18679.3 |
26 | 239925 | (1+0.04) | 249522.28 | 23992.53 | 263918 | 15.0799 | 17501.3 |
27 | 249522 | (1+0.04) | 259503.17 | 24952.23 | 274475 | 16.7387 | 16397.7 |
28 | 259503 | (1+0.04) | 269883.3 | 25950.32 | 285453 | 18.5799 | 15363.6 |
29 | 269883 | (1+0.04) | 280678.63 | 26988.33 | 296872 | 20.6237 | 14394.7 |
30 | 280679 | (1+0.04) | 291905.78 | 28067.86 | 308746 | 22.8923 | 13486.9 |
PV of offer | sum= | 1226409 | |||||
where discount factor = (1+ 11/100)^n | |||||||
discounted cash flow = total cashflow/discount factor |