Question

After graduating from college, Jane has two job offers to consider. Job A is compensated at $100,000 a year but

with no hope of ever having an increase in pay. Jane knows a few of her peers are getting that kind of an offer right
out of college. Job B is for a social media start-up, which guarantees a mere $10,000 a year. The founder is sure the
concept of the company will be the next big thing in social networking and promises a pay increase of 25% at the
beginning of each new year.
a. Which job will have a greater annual salary at the beginning of the fifth year? By approximately how much?
b. Which job will have a greater annual salary at the beginning of the tenth year? By approximately how much?
c. Which job will have a greater annual salary at the beginning of the twentieth year? By approximately how
much?
d. If you were in Jane’s shoes, which job would you take?

Answer 1

Answer: (a) Job A , by approximately $69, 482

`\\` (b) Job A , by approximately $6,867

`\\`(c) Job B , by approximately $ 767,362

`\\` (d) Job A

Explanation:

JOB B

`\\`The starting Salary is $ 10,000

Since there is an increment of 25% at the beginning of each new year. The breakdown of the increment is as follow:

`\\`First year : 125% of $ 10,000 = $12,500

`\\`Second year : 125% of $ 12,500 = $15,625

`\\`Third year : 125% of $15,625= $19,531.25

`\\`Fourth year: 125% of $19,531.25 = $24,414.06

`\\`Fifth year : 125% of $24,414.06 = $30,517.58

`\\`Sixth year: 125% of $30,517.58 = $38,147.00

`\\`Seventh year: 125% of $38,147.00 = $47,683.75

`\\`Eight year: 125% of $47,683.75 = $59,604.69

`\\`Ninth year: 125% of $59,604.69 = $74,505.86

`\\`Tenth year: 125% of $74,505.86 = $93,132.32

`\\`Following the same procedure:

`\\`Eleventh year = $116,415.40

`\\`Twelfth year = $145,519.25

`\\`Thirteenth year = $181,899.06

`\\`Fourteenth year = $227,373.82

`\\`Fifteenth year = $ 284,217.29

`\\`Sixteenth year = $355,271.61

`\\`Seventeenth year = $444,089.51

`\\`Eighteenth year = $555,111.89

`\\`Nineteenth year = $693,889.86

`\\`Twentieth year = $867,362.32

`\\`(a) Following the analysis above, at the beginning of the fifth year Job A will have a greater annual salary

`\\`Difference: Salary of Job A at the beginning of fifth year remains $ 100,000 while that of Job B resulted into $ 30,517.58, the difference implies

$100,000 - $ 30,517.58 = $69,482

`\\`(b) At the beginning of tenth year, Job A is still $100,000, Job B resulted into $93,132.32. Job A is still greater by approximately $6,867

`\\`(c) At the beginning of the twentieth year, the annual salary of A is still $ 100,000 while the annual salary of B is $ 867,362.32. Job B annual salary is greater by approximately $ 767,362

`\\`(d) If I were in Jane’s shoe I will take Job A and work for few years to gain more experience the look for a job that pays better. Waiting for many years in case of Job B is risky , market situation is uncertainty.