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Problem 4-53 Growing Annuities Tom Adams has received a job offer from a large i

ID: 2620960 • Letter: P

Question

Problem 4-53 Growing Annuities

Tom Adams has received a job offer from a large investment bank as a clerk to an associate banker. His base salary will be $59,000. He will receive his first annual salary payment one year from the day he begins to work. In addition, he will get an immediate $15,000 bonus for joining the company. His salary will grow at 3.9 percent each year. Each year he will receive a bonus equal to 10 percent of his salary. Mr. Adams is expected to work for 20 years.

What is the present value of the offer if the discount rate is 10 percent? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Tom Adams has received a job offer from a large investment bank as a clerk to an associate banker. His base salary will be $59,000. He will receive his first annual salary payment one year from the day he begins to work. In addition, he will get an immediate $15,000 bonus for joining the company. His salary will grow at 3.9 percent each year. Each year he will receive a bonus equal to 10 percent of his salary. Mr. Adams is expected to work for 20 years.

Explanation / Answer

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A B C D E F G H I J K L M N O P Q R S T U 1 Year 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 2 Base salary 59000.00 61301.00 63691.74 66175.72 68756.57 71438.08 74224.16 77118.90 80126.54 83251.48 86498.28 89871.72 93376.71 97018.40 100802.12 104733.41 108818.01 113061.91 117471.33 122052.71 Base Salary * ( 1+3.0%) 3 Bonus 15000 5900 6130.1 6369.1739 6617.57168 6875.65698 7143.8076 7422.4161 7711.89032 8012.65405 8325.14755 8649.82831 8987.17161 9337.67131 9701.84049 10080.2123 10473.3405 10881.8008 11306.1911 11747.1325 12205.2707 Bonus = 10% * Base Salary 4 Total salary 15000 64900 67431.1 70060.9129 72793.2885 75632.2268 78581.8836 81646.5771 84830.7936 88139.1945 91576.6231 95148.1114 98858.8877 102714.384 106720.245 110882.335 115206.746 119699.809 124368.102 129218.458 134257.977 5 Discount Rate 10% 6 PV of The offer 739,018.03 NPV(A5,B4:U4) + A4
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