Toselli Animation plans to offer its employees a salary enhancement package that
ID: 1153780 • 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 3% 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 11% 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
Bnuses for each year for next 5 years
$5mn , $5.5 mn ,$6.05mn, $6.655mn, $7.3205mn
Lets find present worth of sales revenue we get
5/1.11+5.5/1.11^2+6.05/1.11^3+6.655/1.11^4+7.3205/1.11^5=$22.12 mn
Now multiplying thid PW with 10% we get present worth of bonuses=$2.212mn
Equivalent Annual Worth =$2.21(0.11(1.11)^5)/(1.11^5-1)=$0.59796 mn
$ 597,960 is the answer