Question

You have two job offers with the following 6-year compensation terms: the first one offers you $80,000 a year for 6 years; the other one offers you a signing bonus of $15,000 plus $50,000 a year for the first 4 years and then 60,000 a year for the last two years. Assume that the appropriate discount rate is 12% and there are no taxes.
a. How much would you lose in present value if you accepted the second offer?
b. By what dollar amount should the second company increase your payment every year, the signing bonus and the following six payments, to make you indifferent between the two offers financially?

Answer 1

a)

b)

Here i am assuming that the dollar amount will be added to bonus and salary equally. For example, if that amount is 10,000 , then this will be added in bonus as well as all the yearly salaries.

Now we can do this by hit and trial method and see by adding which value, our Total present value for both the options is same

Value is 19545.40

Let me know if you have any doubts