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Nancy received a job offer. The annual salary is $90,000. For simplicity, assume she gets paid...

Nancy received a job offer. The annual salary is $90,000. For simplicity, assume she gets paid once a year at the end of each year. The salary is expected to increase 5% per year. If she works at the company for 28 years and the appropriate discount rate is 9% what is the present value of this offer?

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Expert Solution

Salary = Base Salary (1+r)^n

r = Increase Rate

n - No. of Years gap

Assuming $ 90000 is Todays salary.

PV of Salaries = Sum [ Salary after considering inc rate (CF )* PVF(r%, n) ]

Year Salary Today FVF @5% CF PVF @9% Disc CF
1 $ 90,000.00 1.05 $    94,500.00 0.917431 $      86,697.25
2 $ 90,000.00 1.1025 $    99,225.00 0.84168 $      83,515.70
3 $ 90,000.00 1.157625 $ 1,04,186.25 0.772183 $      80,450.90
4 $ 90,000.00 1.215506 $ 1,09,395.56 0.708425 $      77,498.57
5 $ 90,000.00 1.276282 $ 1,14,865.34 0.649931 $      74,654.59
6 $ 90,000.00 1.340096 $ 1,20,608.61 0.596267 $      71,914.97
7 $ 90,000.00 1.4071 $ 1,26,639.04 0.547034 $      69,275.89
8 $ 90,000.00 1.477455 $ 1,32,970.99 0.501866 $      66,733.66
9 $ 90,000.00 1.551328 $ 1,39,619.54 0.460428 $      64,284.71
10 $ 90,000.00 1.628895 $ 1,46,600.52 0.422411 $      61,925.64
11 $ 90,000.00 1.710339 $ 1,53,930.54 0.387533 $      59,653.14
12 $ 90,000.00 1.795856 $ 1,61,627.07 0.355535 $      57,464.04
13 $ 90,000.00 1.885649 $ 1,69,708.42 0.326179 $      55,355.26
14 $ 90,000.00 1.979932 $ 1,78,193.84 0.299246 $      53,323.88
15 $ 90,000.00 2.078928 $ 1,87,103.54 0.274538 $      51,367.04
16 $ 90,000.00 2.182875 $ 1,96,458.71 0.25187 $      49,482.01
17 $ 90,000.00 2.292018 $ 2,06,281.65 0.231073 $      47,666.16
18 $ 90,000.00 2.406619 $ 2,16,595.73 0.211994 $      45,916.94
19 $ 90,000.00 2.52695 $ 2,27,425.52 0.19449 $      44,231.91
20 $ 90,000.00 2.653298 $ 2,38,796.79 0.178431 $      42,608.72
21 $ 90,000.00 2.785963 $ 2,50,736.63 0.163698 $      41,045.10
22 $ 90,000.00 2.925261 $ 2,63,273.46 0.150182 $      39,538.86
23 $ 90,000.00 3.071524 $ 2,76,437.14 0.137781 $      38,087.89
24 $ 90,000.00 3.2251 $ 2,90,258.99 0.126405 $      36,690.17
25 $ 90,000.00 3.386355 $ 3,04,771.94 0.115968 $      35,343.74
26 $ 90,000.00 3.555673 $ 3,20,010.54 0.106393 $      34,046.72
27 $ 90,000.00 3.733456 $ 3,36,011.07 0.097608 $      32,797.30
28 $ 90,000.00 3.920129 $ 3,52,811.62 0.089548 $      31,593.73
PV of Salaries Today $15,33,164.51

Pls do rate, if the answer is correct and comment, if any further assistance is required.

jeff jeffy answered 2 years ago
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