Question

your salary next year is expected to be $40,000. assume you expect your salary to grow at a steady rate of 3% per year for another 28 years. if the appropriate cost of capital is 10% what is the PV today of your future salary cash flow stream? assume the salary amounts are at the end of each of the next 28 years

Answer 1

Solution:

Computation of Present value of Future Salary Cash flow
Year	Salary	PV factor (10%)	Present Value
1	$40,000.00	0.909091	$36,363.64
2	$41,200.00	0.826446	$34,049.59
3	$42,436.00	0.751315	$31,882.79
4	$43,709.08	0.683013	$29,853.89
5	$45,020.35	0.620921	$27,954.10
6	$46,370.96	0.564474	$26,175.20
7	$47,762.09	0.513158	$24,509.51
8	$49,194.95	0.466507	$22,949.81
9	$50,670.80	0.424098	$21,489.37
10	$52,190.93	0.385543	$20,121.86
11	$53,756.66	0.350494	$18,841.38
12	$55,369.35	0.318631	$17,642.38
13	$57,030.44	0.289664	$16,519.69
14	$58,741.35	0.263331	$15,468.43
15	$60,503.59	0.239392	$14,484.08
16	$62,318.70	0.217629	$13,562.36
17	$64,188.26	0.197845	$12,699.30
18	$66,113.91	0.179859	$11,891.17
19	$68,097.32	0.163508	$11,134.46
20	$70,140.24	0.148644	$10,425.90
21	$72,244.45	0.135131	$9,762.43
22	$74,411.78	0.122846	$9,141.19
23	$76,644.14	0.111678	$8,559.48
24	$78,943.46	0.101526	$8,014.78
25	$81,311.76	0.092296	$7,504.75
26	$83,751.12	0.083905	$7,027.18
27	$86,263.65	0.076278	$6,579.99
28	$88,851.56	0.069343	$6,161.26
Total			$480,769.96