Question

You are considering changing jobs. Your goal is to work for three years and then return to school full-time in pursuit of an advanced degree. A potential employer just offered you an annual salary of $22,000, $27,000, and $23,000 a year for the next three years, respectively. All salary payments are made as lump sum payments at the end of each year. The offer also includes a starting bonus of $5,000 payable immediately. What is this offer worth to you today at a discount rate of 9.75 percent

Answer 1

Answer:

The worth of the offer today is $64,859.98

Explanation:

The worth of the job offer today is the sum of the present values of the projected annual salaries plus the immediate bonus payment,

The immediate bonus payment is already stated in today's terms,hence does need to be discounted.

The present value of the $22,000 receivable in one year's time is the $22,000 multiplied by the discounted factor,which is 1/(1+9.75%)^1 i.e 0.9112  

total present values=$5,000+$22,000/(1+9.75%)^1+$27,000/(1+9.75%)^2+$23000/(1+9.75%)^3= $64,859.98