Question

Uniform Annual Cash Flows A-1 Rose recently graduated in engineering. Her employer will give her a raise of $6500 per year if she passes the FE exam (Fundamentals of Engineering). (a) Over a career of 45 years, what is the present worth of the raise if the interest rate is 4%? (b) What is the future worth at Year 45? (C) Incentive pay systems can create ethical dilem- mas in the workplace. Describe one each from the perspective of the employer and the employee.

Answer 1

Answer (a): If we lake into consideration the rate of interest to be 4%, then Worth EAS (1+i)n-1 1 cin) "liciti)"} = A ( = 6500 (, 0.04,45) = 6500 X 20.79 = 135, 135 Present Value = (45,0.04,-6507) = $134, 680

Ansauen (6): Future Worth & Ad Ati)n-18 & A (fon, i) = 6500 C 145,0-08) 26600 X 121.02 - 186, 688 future Value = (45,084 56500) &&&86, 890

Answer (c): The Incentives Pay system, although could result in to etihcal dilema in the initial stages, however, is believed to be one of the most fruitful ways of strawing out the capabilities of an employee. From the perspective of the employer, what matters the most is the final output wherein, the investor (owners of the firm) wants to earn the maximum return from their investment and therefore desire to see the maximum output being put forward by their employees. Therefore, from the employer, the employee who performs the most and puts out the maximum output deserves to receive the maximum benefit and therefore a larger incentive.

Similarly, from the perspective of the employee, a highly productive employee would always want his payout ( incentive) to be naturally higher than the rest and in this case therefore, the incentive system will be more fruitful for him and his level of performance will be boosted by higher incentives.