Question

You have just been offered a job. Your base salary will be $95,000 per year and the first year's annual salary will be received one year from the day you start working. You receive a bonus immediately of $12,500. Your salary will grow 4 percent per year and you will receive a bonus of 10 percent of your salary. You expect to work for 30 years. Your discount rate is 10 percent. What is the present value of your offer?

Answer 1

Years	salary	Bonus	Total pay	Discount value	Present Value
0
1	95,000	12500	1,07,500	0.91	97,727
2	98,800	9,880	1,08,680	0.83	89,818
3	1,02,752	10,275	1,13,027	0.75	84,919
4	1,06,862	10,686	1,17,548	0.68	80,287
5	1,11,137	11,114	1,22,250	0.62	75,908
6	1,15,582	11,558	1,27,140	0.56	71,767
7	1,20,205	12,021	1,32,226	0.51	67,853
8	1,25,014	12,501	1,37,515	0.47	64,152
9	1,30,014	13,001	1,43,015	0.42	60,653
10	1,35,215	13,521	1,48,736	0.39	57,344
11	1,40,623	14,062	1,54,686	0.35	54,216
12	1,46,248	14,625	1,60,873	0.32	51,259
13	1,52,098	15,210	1,67,308	0.29	48,463
14	1,58,182	15,818	1,74,000	0.26	45,820
15	1,64,509	16,451	1,80,960	0.24	43,320
16	1,71,090	17,109	1,88,199	0.22	40,957
17	1,77,933	17,793	1,95,727	0.20	38,723
18	1,85,051	18,505	2,03,556	0.18	36,611
19	1,92,453	19,245	2,11,698	0.16	34,614
20	2,00,151	20,015	2,20,166	0.15	32,726
21	2,08,157	20,816	2,28,972	0.14	30,941
22	2,16,483	21,648	2,38,131	0.12	29,253
23	2,25,142	22,514	2,47,657	0.11	27,658
24	2,34,148	23,415	2,57,563	0.10	26,149
25	2,43,514	24,351	2,67,865	0.09	24,723
26	2,53,254	25,325	2,78,580	0.08	23,374
27	2,63,385	26,338	2,89,723	0.08	22,099
28	2,73,920	27,392	3,01,312	0.07	20,894
29	2,84,877	28,488	3,13,364	0.06	19,754
30	2,96,272	29,627	3,25,899	0.06	18,677
			Total present Value		14,20,663

here, salary has been increased by 4% every year , as in the 1st year , the salary is  $95000, the next year it is (95000*1.04)= 98800, then the following year its (98800*1.04)=102752. and so on.

Bonus for the first year is 12500. but from the second year the bonus is 10% of the salary. As in the second year the salary is 98800, the bonus is 9880.

total pay is the sum of Salary and Bonus.

Discounted value = 1/(1+0.10)^ N, where N= the number of year, like for the second year , discount value is= 1/(1+.1)^2

= 1/(1.21)= 0.83

Present value = Total pay * Discount value.

So the present value of the total pay for the individual for 30 yrs pay is $1,420,663.