Dina has received a job offer from Amegy bank as branch manager Her base salary

Question

Dina has received a job offer from Amegy bank as branch manager Her base salary will be $50,000 today Assuming for simplicity that she will receive $50,000 today and her next annual salary with the appropriate increment one year from today. Her increment will be 5 percent each year if she performs well in the bank. Each year she will receive a bonus equal to 10 percent of her salary and her first bonus will be one year from today (her bonus will be 10% of her salary at that point). Dina is expected to work for the next 20 years. What is the present value of the offer if the discount rate is 9 percent? (Note: 1.5X Credit) $577,500.00 $810,235.04 $1.122,929.30 $1,602.929.95 $2.395,10172

Explanation / Answer

Salary today=50000

Salary next year=50000*1.05

Bonus next year=50000*1.05*10%

Hence, total salary next year=50000*1.05*1.1

Present value of offer=50000*(1-(1.05*1.1/1.09)^20)/(1-1.05*1.1/1.09)=1832040

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