Question

Joe Masters has received a job offer from a large wine retailer. His base salary will be $100,000. 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 4 percent each year, starting after the first year. Each year he will also receive a bonus equal to 5 percent of his salary. Mr. Masters is expected to work for 20 years. What is the present value of the offer if the discount rate is 7 percent?

Answer 1

Calculation of the present value of the offer
Year	Salary	Bonus	Total Payment	Discount factor @ 7%	Present Value
0	$0.00	$50,000.00	$50,000.00	1	$50,000.00
1	$100,000.00	$5,000.00	$105,000.00	0.934579	$98,130.84
2	$104,000.00	$5,200.00	$109,200.00	0.873439	$95,379.51
3	$108,160.00	$5,408.00	$113,568.00	0.816298	$92,705.32
4	$112,486.40	$5,624.32	$118,110.72	0.762895	$90,106.10
5	$116,985.86	$5,849.29	$122,835.15	0.712986	$87,579.76
6	$121,665.29	$6,083.26	$127,748.55	0.666342	$85,124.26
7	$126,531.90	$6,326.60	$132,858.50	0.62275	$82,737.59
8	$131,593.18	$6,579.66	$138,172.84	0.582009	$80,417.85
9	$136,856.91	$6,842.85	$143,699.75	0.543934	$78,163.14
10	$142,331.18	$7,116.56	$149,447.74	0.508349	$75,971.65
11	$148,024.43	$7,401.22	$155,425.65	0.475093	$73,841.61
12	$153,945.41	$7,697.27	$161,642.68	0.444012	$71,771.28
13	$160,103.22	$8,005.16	$168,108.38	0.414964	$69,759.00
14	$166,507.35	$8,325.37	$174,832.72	0.387817	$67,803.14
15	$173,167.64	$8,658.38	$181,826.03	0.362446	$65,902.12
16	$180,094.35	$9,004.72	$189,099.07	0.338735	$64,054.40
17	$187,298.12	$9,364.91	$196,663.03	0.316574	$62,258.48
18	$194,790.05	$9,739.50	$204,529.55	0.295864	$60,512.91
19	$202,581.65	$10,129.08	$212,710.73	0.276508	$58,816.29
20	$210,684.92	$10,534.25	$221,219.16	0.258419	$57,167.24
Present Value of Offer					$1,568,202.50