Question

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You have a choice between two 3-year salary packages. Package 1 will pay you a salary...

You have a choice between two 3-year salary packages.

  • Package 1 will pay you a salary of $4,200 per month for three years. If you complete the three-year contract, you will receive an additional bonus of $4,000 at the end of year 3.
  • Package 2 will pay a salary of $4,000 per month for three years, with a signing bonus today of $8,000.

If the discount rate is 6% compounded monthly, what is the value of each salary package?

Solutions

Expert Solution

Package 1
Month Salary Bonus Total Remuneration Discount Factor @0.5% Per Month Present Value
1 4200.00 0.00 4200.00 0.995 4179.10
2 4200.00 0.00 4200.00 0.990 4158.31
3 4200.00 0.00 4200.00 0.985 4137.62
4 4200.00 0.00 4200.00 0.980 4117.04
5 4200.00 0.00 4200.00 0.975 4096.56
6 4200.00 0.00 4200.00 0.971 4076.18
7 4200.00 0.00 4200.00 0.966 4055.90
8 4200.00 0.00 4200.00 0.961 4035.72
9 4200.00 0.00 4200.00 0.956 4015.64
10 4200.00 0.00 4200.00 0.951 3995.66
11 4200.00 0.00 4200.00 0.947 3975.78
12 4200.00 0.00 4200.00 0.942 3956.00
13 4200.00 0.00 4200.00 0.937 3936.32
14 4200.00 0.00 4200.00 0.933 3916.74
15 4200.00 0.00 4200.00 0.928 3897.25
16 4200.00 0.00 4200.00 0.923 3877.86
17 4200.00 0.00 4200.00 0.919 3858.57
18 4200.00 0.00 4200.00 0.914 3839.37
19 4200.00 0.00 4200.00 0.910 3820.27
20 4200.00 0.00 4200.00 0.905 3801.26
21 4200.00 0.00 4200.00 0.901 3782.35
22 4200.00 0.00 4200.00 0.896 3763.53
23 4200.00 0.00 4200.00 0.892 3744.81
24 4200.00 0.00 4200.00 0.887 3726.18
25 4200.00 0.00 4200.00 0.883 3707.64
26 4200.00 0.00 4200.00 0.878 3689.20
27 4200.00 0.00 4200.00 0.874 3670.84
28 4200.00 0.00 4200.00 0.870 3652.58
29 4200.00 0.00 4200.00 0.865 3634.41
30 4200.00 0.00 4200.00 0.861 3616.32
31 4200.00 0.00 4200.00 0.857 3598.33
32 4200.00 0.00 4200.00 0.852 3580.43
33 4200.00 0.00 4200.00 0.848 3562.62
34 4200.00 0.00 4200.00 0.844 3544.89
35 4200.00 0.00 4200.00 0.840 3527.26
36 4200.00 4000.00 8200.00 0.836 6852.29
Value Of Package 141400.85 $
Package 2
Month Salary Bonus Total Remuneration Discount Factor @0.5% Per Month Present Value
0 0.00 8000.00 8000.00 1.000 8000.00
1 4000.00 0.00 4000.00 0.995 3980.10
2 4000.00 0.00 4000.00 0.990 3960.30
3 4000.00 0.00 4000.00 0.985 3940.60
4 4000.00 0.00 4000.00 0.980 3920.99
5 4000.00 0.00 4000.00 0.975 3901.48
6 4000.00 0.00 4000.00 0.971 3882.07
7 4000.00 0.00 4000.00 0.966 3862.76
8 4000.00 0.00 4000.00 0.961 3843.54
9 4000.00 0.00 4000.00 0.956 3824.42
10 4000.00 0.00 4000.00 0.951 3805.39
11 4000.00 0.00 4000.00 0.947 3786.46
12 4000.00 0.00 4000.00 0.942 3767.62
13 4000.00 0.00 4000.00 0.937 3748.88
14 4000.00 0.00 4000.00 0.933 3730.23
15 4000.00 0.00 4000.00 0.928 3711.67
16 4000.00 0.00 4000.00 0.923 3693.20
17 4000.00 0.00 4000.00 0.919 3674.83
18 4000.00 0.00 4000.00 0.914 3656.54
19 4000.00 0.00 4000.00 0.910 3638.35
20 4000.00 0.00 4000.00 0.905 3620.25
21 4000.00 0.00 4000.00 0.901 3602.24
22 4000.00 0.00 4000.00 0.896 3584.32
23 4000.00 0.00 4000.00 0.892 3566.49
24 4000.00 0.00 4000.00 0.887 3548.74
25 4000.00 0.00 4000.00 0.883 3531.09
26 4000.00 0.00 4000.00 0.878 3513.52
27 4000.00 0.00 4000.00 0.874 3496.04
28 4000.00 0.00 4000.00 0.870 3478.65
29 4000.00 0.00 4000.00 0.865 3461.34
30 4000.00 0.00 4000.00 0.861 3444.12
31 4000.00 0.00 4000.00 0.857 3426.98
32 4000.00 0.00 4000.00 0.852 3409.93
33 4000.00 0.00 4000.00 0.848 3392.97
34 4000.00 0.00 4000.00 0.844 3376.09
35 4000.00 0.00 4000.00 0.840 3359.29
36 4000.00 3000.00 7000.00 0.836 5849.51
Value Of Package 141991.00 $

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