Tom Adams has received a job offer from a large investment bank as a clerk to an
ID: 2731413 • Letter: T
Question
Tom Adams has received a job offer from a large investment bank as a clerk to an associate banker. His base salary will be $47,000. He will receive his first annual salary payment one year from the day he begins to work. In addition, he will get an immediate $11,000 bonus for joining the company. His salary will grow at 3.10 percent each year. Each year he will receive a bonus equal to 14 percent of his salary. Mr. Adams is expected to work for 25 years. What is the present value of the offer if the discount rate is 9 percent?
Please show calculations.
Explanation / Answer
Answer
Figure in $
Years
Salary
Bonus
Joining bonus
Cashflow
Disc Rate : 9%
Present value
A
B
C
D
E
A*0.14
A+B+C
D*E
0
0.00
0.00
11000
11000.00
1
11000
1
47000.00
6580.00
0
53580
0.92
49155.96
2
48457.00
6783.98
0
55240.98
0.84
46495.23
3
49959.17
6994.28
0
56953.45
0.77
43978.51
4
51507.90
7211.11
0
58719.01
0.71
41598.03
5
53104.65
7434.65
0
60539.3
0.65
39346.39
6
54750.89
7665.12
0
62416.01
0.60
37216.63
7
56448.17
7902.74
0
64350.91
0.55
35202.15
8
58198.06
8147.73
0
66345.79
0.50
33296.71
9
60002.20
8400.31
0
68402.51
0.46
31494.42
10
61862.27
8660.72
0
70522.99
0.42
29789.67
11
63780.00
8929.20
0
72709.2
0.39
28177.2
12
65757.18
9206.01
0
74963.18
0.36
26652.02
13
67795.65
9491.39
0
77287.04
0.33
25209.38
14
69897.32
9785.62
0
79682.94
0.30
23844.84
15
72064.13
10088.98
0
82153.11
0.27
22554.15
16
74298.12
10401.74
0
84699.86
0.25
21333.33
17
76601.36
10724.19
0
87325.55
0.23
20178.59
18
78976.01
11056.64
0
90032.65
0.21
19086.36
19
81424.26
11399.40
0
92823.66
0.19
18053.24
20
83948.41
11752.78
0
95701.19
0.18
17076.05
21
86550.82
12117.11
0
98667.93
0.16
16151.75
22
89233.89
12492.74
0
101726.6
0.15
15277.48
23
92000.14
12880.02
0
104880.2
0.14
14450.53
24
94852.15
13279.30
0
108131.4
0.13
13668.35
25
97792.56
13690.96
0
111483.52
0.12
12928.5
Net present value
693215.5
Answer : The present value of the offer is $ 693215.5
Figure in $
Years
Salary
Bonus
Joining bonus
Cashflow
Disc Rate : 9%
Present value
A
B
C
D
E
A*0.14
A+B+C
D*E
0
0.00
0.00
11000
11000.00
1
11000
1
47000.00
6580.00
0
53580
0.92
49155.96
2
48457.00
6783.98
0
55240.98
0.84
46495.23
3
49959.17
6994.28
0
56953.45
0.77
43978.51
4
51507.90
7211.11
0
58719.01
0.71
41598.03
5
53104.65
7434.65
0
60539.3
0.65
39346.39
6
54750.89
7665.12
0
62416.01
0.60
37216.63
7
56448.17
7902.74
0
64350.91
0.55
35202.15
8
58198.06
8147.73
0
66345.79
0.50
33296.71
9
60002.20
8400.31
0
68402.51
0.46
31494.42
10
61862.27
8660.72
0
70522.99
0.42
29789.67
11
63780.00
8929.20
0
72709.2
0.39
28177.2
12
65757.18
9206.01
0
74963.18
0.36
26652.02
13
67795.65
9491.39
0
77287.04
0.33
25209.38
14
69897.32
9785.62
0
79682.94
0.30
23844.84
15
72064.13
10088.98
0
82153.11
0.27
22554.15
16
74298.12
10401.74
0
84699.86
0.25
21333.33
17
76601.36
10724.19
0
87325.55
0.23
20178.59
18
78976.01
11056.64
0
90032.65
0.21
19086.36
19
81424.26
11399.40
0
92823.66
0.19
18053.24
20
83948.41
11752.78
0
95701.19
0.18
17076.05
21
86550.82
12117.11
0
98667.93
0.16
16151.75
22
89233.89
12492.74
0
101726.6
0.15
15277.48
23
92000.14
12880.02
0
104880.2
0.14
14450.53
24
94852.15
13279.30
0
108131.4
0.13
13668.35
25
97792.56
13690.96
0
111483.52
0.12
12928.5
Net present value
693215.5
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.