In: Economics
Blake, who is married and the father of two, is 30 years old and expects to continue to work until the age of 65. He earns $85,000 per year and expects annual salary increases of 2% over his working life. He also expects inflation to be 3% during that time. His personal risk-free discount rate is 6%, his consumption is 20%, and his marginal tax rate is 28%. Determine Blake's human life value.
Blake's human life value equals the present value of Blake's future earnings.
Inflation adjusted risk free discount rate = [ ( 1 + 0.06) ( 1+0.03) ] - 1
Inflation adjusted risk free discount rate = 2.91%
The present value of future earnings after consumption = $1,437,546.48
Year | Earnings | Taxes | Earnings after taxes | Consumption | Earnings after consumption |
1 | 85000 | 23800 | 61200 | 12240 | 48960 |
2 | 86700 | 24276 | 62424 | 12484.8 | 49939.2 |
3 | 88434 | 24761.52 | 63672.48 | 12734.496 | 50937.984 |
4 | 90202.68 | 25256.7504 | 64945.9296 | 12989.18592 | 51956.74368 |
5 | 92006.7336 | 25761.88541 | 66244.84819 | 13248.96964 | 52995.87855 |
6 | 93846.86827 | 26277.12312 | 67569.74516 | 13513.94903 | 54055.79612 |
7 | 95723.80564 | 26802.66558 | 68921.14006 | 13784.22801 | 55136.91205 |
8 | 97638.28175 | 27338.71889 | 70299.56286 | 14059.91257 | 56239.65029 |
9 | 99591.04739 | 27885.49327 | 71705.55412 | 14341.11082 | 57364.44329 |
10 | 101582.8683 | 28443.20313 | 73139.6652 | 14627.93304 | 58511.73216 |
11 | 103614.5257 | 29012.0672 | 74602.4585 | 14920.4917 | 59681.9668 |
12 | 105686.8162 | 29592.30854 | 76094.50767 | 15218.90153 | 60875.60614 |
13 | 107800.5525 | 30184.15471 | 77616.39783 | 15523.27957 | 62093.11826 |
14 | 109956.5636 | 30787.8378 | 79168.72578 | 15833.74516 | 63334.98063 |
15 | 112155.6949 | 31403.59456 | 80752.1003 | 16150.42006 | 64601.68024 |
16 | 114398.8088 | 32031.66645 | 82367.14231 | 16473.42846 | 65893.71384 |
17 | 116686.7849 | 32672.29978 | 84014.48515 | 16802.89703 | 67211.58812 |
18 | 119020.5206 | 33325.74578 | 85694.77485 | 17138.95497 | 68555.81988 |
19 | 121400.931 | 33992.26069 | 87408.67035 | 17481.73407 | 69926.93628 |
20 | 123828.9497 | 34672.10591 | 89156.84376 | 17831.36875 | 71325.47501 |
21 | 126305.5287 | 35365.54802 | 90939.98063 | 18187.99613 | 72751.98451 |
22 | 128831.6392 | 36072.85898 | 92758.78025 | 18551.75605 | 74207.0242 |
23 | 131408.272 | 36794.31616 | 94613.95585 | 18922.79117 | 75691.16468 |
24 | 134036.4375 | 37530.20249 | 96506.23497 | 19301.24699 | 77204.98797 |
25 | 136717.1662 | 38280.80654 | 98436.35967 | 19687.27193 | 78749.08773 |
26 | 139451.5095 | 39046.42267 | 100405.0869 | 20081.01737 | 80324.06949 |
27 | 142240.5397 | 39827.35112 | 102413.1886 | 20482.63772 | 81930.55088 |
28 | 145085.3505 | 40623.89814 | 104461.4524 | 20892.29047 | 83569.1619 |
29 | 147987.0575 | 41436.37611 | 106550.6814 | 21310.13628 | 85240.54513 |
30 | 150946.7987 | 42265.10363 | 108681.695 | 21736.33901 | 86945.35604 |
31 | 153965.7346 | 43110.4057 | 110855.3289 | 22171.06579 | 88684.26316 |
32 | 157045.0493 | 43972.61382 | 113072.4355 | 22614.48711 | 90457.94842 |
33 | 160185.9503 | 44852.06609 | 115333.8842 | 23066.77685 | 92267.10739 |
34 | 163389.6693 | 45749.10741 | 117640.5619 | 23528.11238 | 94112.44954 |
35 | 166657.4627 | 46664.08956 | 119993.3732 | 23998.67463 | 95994.69853 |
Present value | $1,437,546.48 |