Question

In: Finance

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 11 months ago
Next > < Previous

Related Solutions

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 27 years. If the appropriate cost of capital (aka discount rate) is 11.2%, what is the PV today of your future salary cash flow stream? For simplicity, assume the salary amounts are at the end of each of the next 27 years. Answer to zero (0) decimal places.
You currently make $100,000 a year and expect your salary increase by 10% a year for...
You currently make $100,000 a year and expect your salary increase by 10% a year for 20 years.   You are considering an MBA which will cost you $120,000 for the entire education. If you take the MBA, you will have to pay the full tuition today (all upfront) and you will make zero earnings at the end of years 1 and 2. However, after graduation you’ll have an opportunity to join an investment bank, which promises $130,000 a year, which...
You have a job offer ($40,000 per annum, plus 9.5% super. Your salary is expected to...
You have a job offer ($40,000 per annum, plus 9.5% super. Your salary is expected to grow with the CPI each year, CPI is 3% per year.) Your super fund is returning an expected 5% per year. You are 26 years old and plan to retire at age 65, and assume you require $40,000 per year in present value $ from super fund when you retire. Super earnings should be calculated based on the opening superannuation account balance. 1. Provide...
3. The expected dividend next year is $1.30 and dividends are expected to grow at 5%...
3. The expected dividend next year is $1.30 and dividends are expected to grow at 5% forever. What is the value of this promised dividend stream if the discount rate is a) 8% b) 5% c) 3%
Assume your starting salary as a young engineer is$65,000. You expect annual raises of 2.5%. You...
Assume your starting salary as a young engineer is$65,000. You expect annual raises of 2.5%. You will deposit a constant percentage of your annual salary at the end of each year in a savings account that earns 5%. What percentage must be saved so that there will be$1,000,000 in savings for retirement after 25 years?
Assume you are a single taxpayer. If you expect your marginal tax rate to increase next...
Assume you are a single taxpayer. If you expect your marginal tax rate to increase next year, provide two tax planning strategies that you could employ in the current year?
Problem 3.  You currently make $100,000 a year and expect your salary increase by 10% a year...
Problem 3.  You currently make $100,000 a year and expect your salary increase by 10% a year for 20 years.   You are considering an MBA which will cost you $120,000 for the entire education. If you take the MBA, you will have to pay the full tuition today (all upfront) and you will make zero earnings at the end of years 1 and 2.  However, after graduation you’ll have an opportunity to join a premier investment bank, which promises $130,000 a year, which...
Assume that the average firm in your company's industry is expected to grow at a constant...
Assume that the average firm in your company's industry is expected to grow at a constant rate of 5% and that its dividend yield is 8%. Your company is about as risky as the average firm in the industry and just paid a dividend (D0) of $1.5. You expect that the growth rate of dividends will be 50% during the first year (g0,1 = 50%) and 30% during the second year (g1,2 = 30%). After Year 2, dividend growth will...
Assume that the average firm in your company's industry is expected to grow at a constant...
Assume that the average firm in your company's industry is expected to grow at a constant rate of 6% and that its dividend yield is 8%. Your company is about as risky as the average firm in the industry and just paid a dividend (D0) of $1.75. You expect that the growth rate of dividends will be 50% during the first year (g0,1 = 50%) and 20% during the second year (g1,2 = 20%). After Year 2, dividend growth will...
Assume that the average firm in your company's industry is expected to grow at a constant...
Assume that the average firm in your company's industry is expected to grow at a constant rate of 5% and that its dividend yield is 8%. Your company is about as risky as the average firm in the industry and just paid a dividend (D0) of $2. You expect that the growth rate of dividends will be 50% during the first year (g0,1 = 50%) and 30% during the second year (g1,2 = 30%). After Year 2, dividend growth will...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT