You are considering changing jobs.Your goal is to work for three years and then return to school full-time in pursuit of an advanced degree.A potential employer just offered you an annual salary of $41,000,$43,000,and $46,000 a year for the next three years,respectively.All salary payments are made as lump sum payments at the end of each year.The offer also includes a starting bonus of $3,000 payable immediately.What is this offer worth to you today at a discount rate of 6.75 percent?

Question

Quizplus · Accepted Answer

To find the present value of the offer, we need to discount the future cash flows back to the present. We can use the formula:

PV = (CF1 / (1 + r)^1) + (CF2 / (1 + r)^2) + (CF3 / (1 + r)^3)

Where PV is the present value, CF is the cash flow, r is the discount rate, and the numbers in parentheses represent the year in which the cash flow occurs.

Using the information provided, we get:

PV = (3,000 / (1 + 0.0675)^0) + (41,000 / (1 + 0.0675)^1) + (43,000 / (1 + 0.0675)^2) + (46,000 / (1 + 0.0675)^3)

PV = $111,955.77

Therefore, the offer is worth $111,955.77 to you today at a discount rate of 6.75 percent. The closest answer choice is C) $116,956, which is the best choice.

You Are Considering Changing Jobs