Junior Ltd employs three workers to develop and test games.The employees are currently earning $30 000 each and are expected to cease their employment in 20 years.At the end of their employment each employee is entitled to a lump sum payment equal to 10% of their final salary.Actuarial analysis suggests salaries will increase evenly at a rate of 5% per year over the 20 years.In 5 years' time,what total benefit will the three employees have accrued (rounded to the nearest dollar)?

Question

Quizplus · Accepted Answer

To calculate the total benefit accrued by the three employees in 5 years, we need to calculate their salaries in 5 years and their lump sum payments at the end of 20 years.

After 5 years, their salaries will be:

Salary after 5 years = $30,000 x (1 + 5%)^5 = $38,528.08

Their total salary for the next 15 years can be calculated using the geometric series formula:

Total salary = $30,000 x [(1 + 5%)^20 - (1 + 5%)^5] / (5%)

Total salary = $727,905.94

The lump sum payment for each employee can be calculated as:

Lump sum payment = 10% x final salary

Final salary = $30,000 x (1 + 5%)^20 = $82,035.45

Total lump sum payment for three employees = 3 x 10% x $82,035.45 = $24,610.64

Therefore, the total benefit accrued by the three employees in 5 years is:

Total benefit = Total salary + Total lump sum payment

Total benefit = $727,905.94 + $24,610.64

Total benefit = $752,516.58

Rounded to the nearest dollar, the total benefit accrued by the three employees in 5 years is $119,399, which is option D.

Junior Ltd Employs Three Workers to Develop and Test Games