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As manager of the process engineering department, you've been asked to prepare your team's salary budget...

As manager of the process engineering department, you've been asked to prepare your team's salary budget for the next few years. This year, salaries for the process engineering team (assume all salaries are paid at the end of the year) will total $425,000. What is the present worth of the salaries your employees will receive over the next three years if you anticipate giving employees a 3.25% raise each year? Assume that the market interest rate is 5%,

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Answer #1

This year, salaries will total $425,000. Gradient g = 3.25%. Interest rate i = 5%

Use PW = A * (1 - ((1+g)^n)*((1+i)^-n)) / (i - g)

Present worth of the salaries over the next three years = 425,000 * (1 - (1.0325^3)*(1.05^-3))/(0.05-0.0325)

= $1,194,160

Hence the answer is $1,194,160

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