Question

Jerry was recently offered a position with a major accounting firm. The firm offered Jerry either a signing bonus of $23,000 payable on the first day of work or a signing bonus of $26,000 payable after one year of employment. Assuming that he will remain at the firm for a least one year and given a relevant interest rate of 15%, which option should Jerry choose?

a. The options are equivalent.
b. Insufficient information to determine.
c. The signing bonus of $23,000 payable on the first day of work.
d. The signing bonus of $26,000 payable after one year of employment.

Answer 1

Jerry should choose the signing bonus of $23,000 payable on the first day of work, as its present value is greater than the present value of the $26,000 bonus after one year.

Step-by-step explanation:

To determine which signing bonus option Jerry should choose, we need to calculate the present value of the $26,000 payable after one year at an interest rate of 15%. Using the formula for the present value of a future cash flow, which is the future value divided by
`(1 + Interest rate)^(number of years)` t, we can calculate the equivalent value today of the $26,000 that would be received in one year.

The present value of the $26,000 is calculated as follows: $26,000 /
`(1 + 0.15)^1` = $26,000 / 1.15 = $22,608.70 approximately.

Comparing the present value of $22,608.70 with the immediate signing bonus of $23,000, we can see that Jerry would be better off taking the immediate payment, as its present value is greater. Therefore, Jerry should choose the signing bonus of $23,000 payable on the first day of work.

Answer 2

The signing bonus of $26,000 payable after one year of employment.

Step-by-step explanation:

Signing bonus can be said to be am amount of money or cash which is been paid to a new employee which an organisation or company newly employed in which such money paid to the new employee is an incentive for joining that company reason been that the incentive are often given as a way of making a compensation package more attractive to the employee especially in a situation where the annual salary is lesser than they desire.

Therefore assuming that he will remain at the firm for a least one year and given a relevant interest rate of 15%, Jerry should choose The signing bonus of $26,000 payable after one year of employment.