Toselli Animation plans to offer its employees a salary enhancement package that
ID: 1132091 • Letter: T
Question
Toselli Animation plans to offer its employees a salary enhancement package that has revenue sharing as its main component. Specifically, the company will set aside 1% of total sales revenue for year-end bonuses. The sales are expected to be $5 million the first year, $5.5 million the second year, and amounts increasing by 10% each year for the next 5 years. At an interest rate of 8% per year, what is the equivalent annual worth in years 1 through 5 of the bonus package?
The equivalent annual worth of the bonus package is $?
Explanation / Answer
Present value of future cash flows
=(5000000*1%)/1.08^1+((5000000*(1+10%))*1%)/1.08^2+((5000000*(1+10%)^2)*1%)/1.08^3+((5000000*(1+10%)^3)*1%)/1.08^4+((5000000*(1+10%)^4)*1%)/1.08^5
=240215.11
now use financial calculator
PV=-240215.11
FV=0
N=5
1/Y=8
Click CPT
Click PMT=60163.43, so 60164 is the answer