Question
In: Economics
Biff works for ACME, a multinational conglomerate. He is 60 and plans on working five more...
Biff works for ACME, a multinational conglomerate. He is 60 and
plans on working five more years (including the current year). He
expects to earn $100,000 in each of the 5 years he has left at
ACME. ACME, however, wants to buy Biff out of his contract.
Assuming Biff has an 8% discount rate, calculate the present value
of his remaining days at ACME. Be careful: do not discount the
current year and make no other assumptions than these.
Solutions
Expert Solution
Discount rate = 8%
Income every year = 100,000
| Year | Income | Present value of Income | Rough work to calculate present value of Income |
| 0 | 100,000 | 100,000.00 | [100,000 / 1.08^0] |
| 1 | 100,000 | 92,592.59 | [100,000 / 1.08^1] |
| 2 | 100,000 | 85,733.88 | [100,000 / 1.08^3] |
| 3 | 100,000 | 79,383.22 | [100,000 / 1.08^4] |
| 4 | 100,000 | 73,502.99 | [100,000 / 1.08^5] |
| 431,212.68 |
Present value of Income = 431,212.68
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