Tom Adams has received a job offer from a large investment bank as a clerk to an
ID: 2810165 • 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 $49,000. He will receive his first annual salary payment one year from the day he begins to work. In addition, he will get an immediate $20,000 bonus for joining the company. His salary will grow at 3.7 percent each year. Each year he will receive a bonus equal to 10 percent of his salary. Mr. Adams is expected to work for 30 years. What is the present value of the offer if the discount rate is 8 percent? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Present valueExplanation / Answer
Year
Salary
Growth
Bonus
Total annual pay
PV factor @ 8%
PV of amount
0
20000
20000.00
1.00000
20000.00
1
49000
3.70%
4900.00
53900.00
0.92593
49907.41
2
50813.00
3.70%
5081.30
55894.30
0.85734
47920.35
3
52693.08
3.70%
5269.31
57962.39
0.79383
46012.41
4
54642.72
3.70%
5464.27
60107.00
0.73503
44180.44
5
56664.51
3.70%
5666.45
62330.96
0.68058
42421.40
6
58761.09
3.70%
5876.11
64637.20
0.63017
40732.40
7
60935.25
3.70%
6093.53
67028.78
0.58349
39110.65
8
63189.86
3.70%
6318.99
69508.84
0.54027
37553.47
9
65527.88
3.70%
6552.79
72080.67
0.50025
36058.28
10
67952.41
3.70%
6795.24
74747.66
0.46319
34622.63
11
70466.65
3.70%
7046.67
77513.32
0.42888
33244.13
12
73073.92
3.70%
7307.39
80381.31
0.39711
31920.52
13
75777.65
3.70%
7577.77
83355.42
0.36770
30649.61
14
78581.43
3.70%
7858.14
86439.57
0.34046
29429.31
15
81488.94
3.70%
8148.89
89637.83
0.31524
28257.58
16
84504.03
3.70%
8450.40
92954.43
0.29189
27132.51
17
87630.68
3.70%
8763.07
96393.75
0.27027
26052.24
18
90873.02
3.70%
9087.30
99960.32
0.25025
25014.97
19
94235.32
3.70%
9423.53
103658.85
0.23171
24019.01
20
97722.02
3.70%
9772.20
107494.23
0.21455
23062.69
21
101337.74
3.70%
10133.77
111471.51
0.19866
22144.46
22
105087.23
3.70%
10508.72
115595.96
0.18394
21262.78
23
108975.46
3.70%
10897.55
119873.01
0.17032
20416.21
24
113007.55
3.70%
11300.76
124308.31
0.15770
19603.34
25
117188.83
3.70%
11718.88
128907.72
0.14602
18822.83
26
121524.82
3.70%
12152.48
133677.30
0.13520
18073.41
27
126021.24
3.70%
12602.12
138623.36
0.12519
17353.82
28
130684.03
3.70%
13068.40
143752.43
0.11591
16662.88
29
135519.33
3.70%
13551.93
149071.27
0.10733
15999.45
30
140533.55
3.70%
14053.35
154586.90
0.09938
15362.43
Total
903003.62
PV of salary is $903003.62
Year
Salary
Growth
Bonus
Total annual pay
PV factor @ 8%
PV of amount
0
20000
20000.00
1.00000
20000.00
1
49000
3.70%
4900.00
53900.00
0.92593
49907.41
2
50813.00
3.70%
5081.30
55894.30
0.85734
47920.35
3
52693.08
3.70%
5269.31
57962.39
0.79383
46012.41
4
54642.72
3.70%
5464.27
60107.00
0.73503
44180.44
5
56664.51
3.70%
5666.45
62330.96
0.68058
42421.40
6
58761.09
3.70%
5876.11
64637.20
0.63017
40732.40
7
60935.25
3.70%
6093.53
67028.78
0.58349
39110.65
8
63189.86
3.70%
6318.99
69508.84
0.54027
37553.47
9
65527.88
3.70%
6552.79
72080.67
0.50025
36058.28
10
67952.41
3.70%
6795.24
74747.66
0.46319
34622.63
11
70466.65
3.70%
7046.67
77513.32
0.42888
33244.13
12
73073.92
3.70%
7307.39
80381.31
0.39711
31920.52
13
75777.65
3.70%
7577.77
83355.42
0.36770
30649.61
14
78581.43
3.70%
7858.14
86439.57
0.34046
29429.31
15
81488.94
3.70%
8148.89
89637.83
0.31524
28257.58
16
84504.03
3.70%
8450.40
92954.43
0.29189
27132.51
17
87630.68
3.70%
8763.07
96393.75
0.27027
26052.24
18
90873.02
3.70%
9087.30
99960.32
0.25025
25014.97
19
94235.32
3.70%
9423.53
103658.85
0.23171
24019.01
20
97722.02
3.70%
9772.20
107494.23
0.21455
23062.69
21
101337.74
3.70%
10133.77
111471.51
0.19866
22144.46
22
105087.23
3.70%
10508.72
115595.96
0.18394
21262.78
23
108975.46
3.70%
10897.55
119873.01
0.17032
20416.21
24
113007.55
3.70%
11300.76
124308.31
0.15770
19603.34
25
117188.83
3.70%
11718.88
128907.72
0.14602
18822.83
26
121524.82
3.70%
12152.48
133677.30
0.13520
18073.41
27
126021.24
3.70%
12602.12
138623.36
0.12519
17353.82
28
130684.03
3.70%
13068.40
143752.43
0.11591
16662.88
29
135519.33
3.70%
13551.93
149071.27
0.10733
15999.45
30
140533.55
3.70%
14053.35
154586.90
0.09938
15362.43
Total
903003.62
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