Davenport Inc. offers a new employee a single-sum signing bonus at the date of employment. Alternatively, the employee can receive $30,000 at the date of employment and another $50,000 two years later. Assuming the employee's time value of money is 8% annually, what single sum at the employment date would make her indifferent between the two options? (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1)

Question

Quizplus · Accepted Answer

The single-sum equivalent would be $30,000 + the present value of $50,000 where n = 2 and i = 8%. That is, $30,000 + ($50,000 × 0.85734 from Table 2) = $72,867.