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In: Finance

You have just been offered a job. Your base salary will be $90,000 per year and...

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

Solutions

Expert Solution

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

jeff jeffy answered 3 months ago
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