Toselli Animation plans to offer its employees a salary enhancement package that
ID: 1148681 • 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 14% 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
First, we compute Present Worth (PW) as follows.
Equivalent annual worth = PW / P/A(14%, 5) = $204,439 / 3.4331 = $59,549.39
Year Salary ($) Bonus ($) PV Factor @14% Discounted Bonus ($) (A) (B)=(A)x1% (C) (B)x(C) 1 50,00,000 50,000 0.8772 43,860 2 55,00,000 55,000 0.7695 42,321 3 60,50,000 60,500 0.6750 40,836 4 66,55,000 66,550 0.5921 39,403 5 73,20,500 73,205 0.5194 38,020 PW of Bonus ($) = 204,439