Question
A. TVM: Robert Adams has received a job offer from a large investment bank as a clerk to an associate banker. His base salary will
A. TVM: Robert Adams has received a job offer from a large investment bank as a clerk to an associate banker. His base salary will be 45,000 (time zero). He will receive his first annual salary payment of 46,575 one year from the day he begins to work. In addition, he will get an immediate 10,000 bonus for joining the company. His salary will grow at 3.5 percent each year. Each year he will receive a bonus equal to 10 percent of his salary. Mr. Adams is expected to work for 25 years. What is the most that is offered if the discount rate is 12 percent?
B. Samuel, a relief pitcher, is about to sign a multi-year contract designed to provide lifetime security. The newspaper headlines said it was worth $80million. On signing, Samuel will be paid a $20,000,000 signing bonus. In the next 5 years, he gets $8,000,000 per year. For 10 years after that, he will get $3,000,000 per year. For another 30 years, he will get $700,000 per year. What is the contracts present value if he expects interest rates to remain at 9 percent?
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