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36. Comparing Cash Flow Streams [LO1] You've just joined the investment banking firm of Dewey, Cheatum, and Howe. They've offered you two different salary arrangements.

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36. Comparing Cash Flow Streams [LO1] You've just joined the investment banking firm of Dewey, Cheatum, and Howe. They've offered you two different salary arrangements. You can have $85,000 per year for the next two years, or you can have $74,000 per year for the next two years, along with a $20,000 signing bonus today. The bonus is paid immediately, and the salary is paid in equal amounts at the end of each month. If the interest rate is 7 percent Option 1 Salary Timeline Annual CF Time 1 2 3 4 Monthly CF CF 0 0 Annual Rate Salary Monthly Rate Lump Sum (0) This is an annuity so you can use the annuity formulalfunction PV PMT FV RATE (Monthly) NPER (Months) 0 - NO so 5 0 24 0 0 Option 2 Annual CF Salary and Lump Sum Timeline Monthly CF Time 0 1 2 3 4 5 24 Annual Rate CF 20000 0.0 0.0 00 00 00 0.0 Monthly Rate Bonus Salary Lump Sum (10) This is an annuity + a lump sum PV "This is the PY of the annuity plusiminus the 20k bonus (be sensitive to whether it is inflow or outflow) PMT FV RATE (Monthly) NPER (Months) 36. Comparing Cash Flow Streams [LO1] You've just joined the investment banking firm of Dewey, Cheatum, and Howe. They've offered you two different salary arrangements. You can have $85,000 per year for the next two years, or you can have $74,000 per year for the next two years, along with a $20,000 signing bonus today. The bonus is paid immediately, and the salary is paid in equal amounts at the end of each month. If the interest rate is 7 percent Option 1 Salary Timeline Annual CF Time 1 2 3 4 Monthly CF CF 0 0 Annual Rate Salary Monthly Rate Lump Sum (0) This is an annuity so you can use the annuity formulalfunction PV PMT FV RATE (Monthly) NPER (Months) 0 - NO so 5 0 24 0 0 Option 2 Annual CF Salary and Lump Sum Timeline Monthly CF Time 0 1 2 3 4 5 24 Annual Rate CF 20000 0.0 0.0 00 00 00 0.0 Monthly Rate Bonus Salary Lump Sum (10) This is an annuity + a lump sum PV "This is the PY of the annuity plusiminus the 20k bonus (be sensitive to whether it is inflow or outflow) PMT FV RATE (Monthly) NPER (Months)

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