Question

Mr. Ananta Jalil has received a job offer from a large investment bank as an assistant to the vice

Answer 1

The present value of the offer is $145,466.83

What is the present value?

The first step is to determine the present value of the growing annuity. The formula that would be used is:

$\frac{P}{r - g}$ x $[1 - \frac{1 + g}{1 + r} ^{n} ]$

Where:

• p = base salary
• r = discount rate
• g = growth rate
• n = number of years

$35,000 / (0.12 - 0.04) = 437,500

1 - (1.04/0.12)^5 = 0.31

0.31 x 437,500 = $135,466.83

Present value =  $135,466.83 + $10,000 =  $145,466.83