Mr. Jones has been offered two different employment contracts. The first option

Question

Mr. Jones has been offered two different employment contracts. The first option would give him a signing bonus of $10,000 with an annual salary of $100,000 for each of the next five years. The second option would give him a signing bonus of $50,000 with an annual salary of $80,000 for each of the next five years. Assuming his investment rate is 6%, which option is better and how much better is it?
Select one: a. Option 1; $44,000 b. Option 1; $23,000 c. Option 2; $44,000 d. Option 2; $23,000 Mr. Jones has been offered two different employment contracts. The first option would give him a signing bonus of $10,000 with an annual salary of $100,000 for each of the next five years. The second option would give him a signing bonus of $50,000 with an annual salary of $80,000 for each of the next five years. Assuming his investment rate is 6%, which option is better and how much better is it?
Select one: a. Option 1; $44,000 b. Option 1; $23,000 c. Option 2; $44,000 d. Option 2; $23,000 Mr. Jones has been offered two different employment contracts. The first option would give him a signing bonus of $10,000 with an annual salary of $100,000 for each of the next five years. The second option would give him a signing bonus of $50,000 with an annual salary of $80,000 for each of the next five years. Assuming his investment rate is 6%, which option is better and how much better is it?
Select one: a. Option 1; $44,000 b. Option 1; $23,000 c. Option 2; $44,000 d. Option 2; $23,000

Explanation / Answer

a. Option 1; $44,000

(431,236.38-386,989.10)=44247

Cash Flow PV factor PV 10000 1.00000 10,000.00 100000 4.21236 421,236.38 PV of Option 1 431,236.38

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