Question

Dina has received a job offer from Amegy bank as branch manager. Her base salary will be $50,000 today. Assuming for simplicity that she will receive $50,000 today and her next annual salary with the appropriate increment one year from today. Her increment will be 5 percent each year if she performs well in the bank. Each year she will receive a bonus equal to 10 percent of her salary and her first bonus will be one year from today (her bonus will be 10% of her salary at that point). Dina is expected to work for the next 20 years. What is the present value of the offer if the discount rate is 9 percent? (Note: 1.5X Credit) $577,500.00 $810,235.04 $1,122,929.30 $1,602,929.95 $2,395,101.72

Answer 1

$810,235.04

The base salary and bonus amounts are as below

Year	Base Salary	Bonus	Net Cash flows
0.00	50000.00	0.00	50000.00
1.00	52500.00	5250.00	57750.00
2.00	55125.00	5512.50	60637.50
3.00	57881.25	5788.13	63669.38
4.00	60775.31	6077.53	66852.84
5.00	63814.08	6381.41	70195.49
6.00	67004.78	6700.48	73705.26
7.00	70355.02	7035.50	77390.52
8.00	73872.77	7387.28	81260.05
9.00	77566.41	7756.64	85323.05
10.00	81444.73	8144.47	89589.20
11.00	85516.97	8551.70	94068.66
12.00	89792.82	8979.28	98772.10
13.00	94282.46	9428.25	103710.70
14.00	98996.58	9899.66	108896.24
15.00	103946.41	10394.64	114341.05
16.00	109143.73	10914.37	120058.10
17.00	114600.92	11460.09	126061.01
18.00	120330.96	12033.10	132364.06
19.00	126347.51	12634.75	138982.26
20.00	132664.89	13266.49	145931.37

NPV is computed using Excel formula as below