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 Choices:

A. $1,430,435.39

B. $1,429,299.02

C. $1,434,947.00

Answer 1

Correct answer------------A. $1,430,435.39

Working

Year	Salary	PV factor	Present value of cash flows
0	$    12,500.00	1	$        12,500.00
1	$ 104,500.00*	0.909091	$        95,000.00
2	$ 108,680.00**	0.826446	$        89,818.18
3	$ 113,027.20	0.751315	$        84,919.01
4	$ 117,548.29	0.683013	$        80,287.06
5	$ 122,250.22	0.620921	$        75,907.77
6	$ 127,140.23	0.564474	$        71,767.34
7	$ 132,225.84	0.513158	$        67,852.76
8	$ 137,514.87	0.466507	$        64,151.70
9	$ 143,015.47	0.424098	$        60,652.52
10	$ 148,736.08	0.385543	$        57,344.20
11	$ 154,685.53	0.350494	$        54,216.33
12	$ 160,872.95	0.318631	$        51,259.08
13	$ 167,307.87	0.289664	$        48,463.13
14	$ 174,000.18	0.263331	$        45,819.69
15	$ 180,960.19	0.239392	$        43,320.43
16	$ 188,198.60	0.217629	$        40,957.50
17	$ 195,726.54	0.197845	$        38,723.45
18	$ 203,555.60	0.179859	$        36,611.26
19	$ 211,697.83	0.163508	$        34,614.29
20	$ 220,165.74	0.148644	$        32,726.23
21	$ 228,972.37	0.135131	$        30,941.17
22	$ 238,131.26	0.122846	$        29,253.47
23	$ 247,656.51	0.111678	$        27,657.82
24	$ 257,562.77	0.101526	$        26,149.21
25	$ 267,865.29	0.092296	$        24,722.89
26	$ 278,579.90	0.083905	$        23,374.37
27	$ 289,723.09	0.076278	$        22,099.41
28	$ 301,312.02	0.069343	$        20,893.98
29	$ 313,364.50	0.063039	$        19,754.31
30	$ 325,899.08	0.057309	$        18,676.80
Total present value of Offer			$ 1,430,435.39

*95000 x110%

**95000 x 104% x 110%