You are considering a job offer. The job offers an annual salary of $42,000, $45,000, and $48,000 a year for the next three years, respectively. The offer also includes a starting bonus of $1,000
Payable immediately. What is this offer worth to you today at a discount rate of 5.5%?

Question

Quizplus · Accepted Answer

To calculate the present value of the job offer, we need to calculate the present value of each cash flow and add them up. We also need to account for the time value of money, using a discount rate of 5.5%.

PV of salary in year 1 = $42,000 / (1 + 0.055)^1 = $39,905.21 
PV of salary in year 2 = $45,000 / (1 + 0.055)^2 = $40,534.04 
PV of salary in year 3 = $48,000 / (1 + 0.055)^3 = $40,756.99 
PV of starting bonus = $1,000 / (1 + 0.055)^0 = $1,000

Total present value = $39,905.21 + $40,534.04 + $40,756.99 + $1,000 = $122,196.24

Therefore, the best choice is C: $122,118.24.

You Are Considering a Job Offer