I have accepted a new position at Michigan State University. According to the te

Question

I have accepted a new position at Michigan State University. According to the terms of my contract, I will immediately receive a signing bonus worth $50,000. My salary is a bit weird: I will be paid $200,000 per year at the end of each year. In addition, my compensation package includes two bonus provisions: Each year my base salary will increase 5% over the prior year and if I am still employed there in 20 years I will earn an additional $1,000,000 longevity bonus. If I work for 20 years and if the discount rate is 8%, what is the net present value of my compensation package?

Explanation / Answer

Net Present Value: $185,332.06 PV of Expected Cash flows: $235,332.06

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