Your salary next year is expected to be $40,000. Assume you expect your salary to grow...

Your salary next year is expected to be $40,000. Assume you expect your salary to grow at a steady rate of 4% per year for another 25 years. If the appropriate cost of capital (aka discount rate) is 9%, what is the PV today of your future salary cashflow stream? [For simplicity, assume the salary amounts are at the end of each of the next 25 years.] Please provide calculations using excel and financial calculator.

Solutions

Expert Solution

Year	Salary	PVF at 9%	Present value
1	40000	0.917431	36697.25
2	41600	0.84168	35013.89
3	43264	0.772183	33407.75
4	44994.56	0.708425	31875.28
5	46794.34	0.649931	30413.11
6	48666.12	0.596267	29018.01
7	50612.76	0.547034	27686.91
8	52637.27	0.501866	26416.87
9	54742.76	0.460428	25205.09
10	56932.47	0.422411	24048.89
11	59209.77	0.387533	22945.73
12	61578.16	0.355535	21893.17
13	64041.29	0.326179	20888.9
14	66602.94	0.299246	19930.69
15	69267.06	0.274538	19016.44
16	72037.74	0.25187	18144.13
17	74919.25	0.231073	17311.83
18	77916.02	0.211994	16517.71
19	81032.66	0.19449	15760.02
20	84273.97	0.178431	15037.08
21	87644.93	0.163698	14347.3
22	91150.72	0.150182	13689.17
23	94796.75	0.137781	13061.23
24	98588.62	0.126405	12462.09
25	102532.2	0.115968	11890.43
26	106633.5	0.106393	11345
Present value			564024

Answer is $ 564024

jeff jeffy answered 4 months ago

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