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Your first job out of college will pay you $70,000 in year 1 (exactly one year...

Your first job out of college will pay you $70,000 in year 1 (exactly one year from today). You estimate that your salary will grow at 9% per year for 40 years (compounded annually), when you'll stop working. If the applicable discount rate is 15%, what is the present value of these future earnings today? Round to the nearest cent.

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Expert Solution

Year Salary PV F at 15% Present value
1 70000 0.869565 60869.57
2 76300 0.756144 57693.76
3 83167 0.657516 54683.65
4 90652.03 0.571753 51830.59
5 98810.71 0.497177 49126.39
6 107703.7 0.432328 46563.27
7 117397 0.375937 44133.88
8 127962.7 0.326902 41831.25
9 139479.4 0.284262 39648.75
10 152032.5 0.247185 37580.12
11 165715.5 0.214943 35619.41
12 180629.8 0.186907 33761.01
13 196886.5 0.162528 31999.57
14 214606.3 0.141329 30330.02
15 233920.9 0.122894 28747.59
16 254973.8 0.106865 27247.71
17 277921.4 0.092926 25826.09
18 302934.3 0.080805 24478.65
19 330198.4 0.070265 23201.5
20 359916.3 0.0611 21990.99
21 392308.8 0.053131 20843.63
22 427616.5 0.046201 19756.14
23 466102 0.040174 18725.38
24 508051.2 0.034934 17748.4
25 553775.8 0.030378 16822.4
26 603615.6 0.026415 15944.71
27 657941.1 0.02297 15112.81
28 717155.7 0.019974 14324.32
29 781699.8 0.017369 13576.96
30 852052.7 0.015103 12868.6
31 928737.5 0.013133 12197.19
32 1012324 0.01142 11560.82
33 1103433 0.009931 10957.65
34 1202742 0.008635 10385.94
35 1310989 0.007509 9844.067
36 1428978 0.006529 9330.463
37 1557586 0.005678 8843.657
38 1697768 0.004937 8382.248
39 1850568 0.004293 7944.914
40 2017119 0.003733 7530.397
Present value of salaries 1029864
Note:
Each year salary is computed as under:
Salary of current year = salary of previous year + 9%

jeff jeffy answered 1 year ago
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