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Garland Inc. offers a new employee a single-sum signing bonus at the date of employment, June 1, 2021. Alternatively, the employee can receive $44,000 at the date of employment plus $15,000 each June 1
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41 votes
Garland Inc. offers a new employee a single-sum signing bonus at the date of employment, June 1, 2021. Alternatively, the employee can receive $44,000 at the date of employment plus $15,000 each June 1 for four years, beginning in 2024. Assuming the employee's time value of money is 9% annually, what single amount at the employment date would make the options equally desirable

User Veger
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16 votes
16 votes

Answer: $‭84,902.17‬

Step-by-step explanation:

Find the present value of the $44,000 and the $15,000 each June for 4 years.

First find the present value of the $15,000 in June 2024:

= 15,000 * Present value interest factor of Annuity due, 4 years, 9%

= 15,000 * 3.5313

= $‭‭52,969.5‬0

Then present value it to 2021:

= 52,969.50 / (1 + 9%)³

= $40,902.17

Add this to the $44,000 on June 2021:

= 44,000 + 40,902.17

= $‭84,902.17‬

Employee will be indifferent if $‭84,902.17‬ is received.

Garland Inc. offers a new employee a single-sum signing bonus at the date of employment-example-1
User Vasilij
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