Question

In: Accounting

You have been offered a job with an unusual bonus structure. As long as you stay...

You have been offered a job with an unusual bonus structure. As long as you stay with the​ firm, you will get an extra every seven​ years, starting seven years from now. What is the present value of this incentive if you plan to work for the company for years and the interest rate is ​(EAR)? ​(Note: Be careful not to round any intermediate steps less than six decimal​ places.) The present value of this incentive is ​$

Solutions

Expert Solution

Plan:      Draw a timeline to fully understand the timing of the cash flows. Determine the present value of the bonus payments.

Execute:

0

7

14

         42

70,000

70,000

70,000

               Because the equivalent discount rate for a 7-year period is 50.363%.

               Using the annuity formula

N

I/Y

PV

PMT

FV

Excel Formula

Given:

6

50.36%

70,000

0

Solve for PV:

(126,964.34)

=PV(0.503630258991361,6,70000,0)

Evaluate:        The present value of the bonus payments is $126,964.

ekkarill92 answered 2 years ago
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