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27 August, 05:51

You have been offered a job with an unusual bonus structure. as long as you stay with the firm

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  1. 27 August, 06:51
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    This question is incomplete however as per our research the question should be

    You have been offered a job with an unusual bonus structure. As long as you stay with the firm, you will get an extra $70,000 every seven years, starting seven years from now.

    What is the present value of this incentive if you plan to work for the company for 42 years and the interest rate is 6.0% (EAR) ?

    The detail answer with calculation is given below.

    Explanation:

    Present value is the discounted value of the future value. Time Value of money theory states that the value of the money increases as time passes. This current value is known as the present value.

    The present value of this incentive if you plan to work for the company for 42 years is 126,964.34 $. (W-1)

    (W-1)

    Year - time Discount Factor * Net present value Calculation * *

    7 0.6651 46,554.00

    14 0.4423 30,961.07

    21 0.2942 20,590.88

    28 0.1956 13,694.11

    35 0.1301 9,107.37

    42 0.0865 6,056.92

    126,964.34

    *DF = (1+i) ^t

    **PV = DF*70000

    where i=6% i. e interest rate
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