Question

Problem 6-36 Comparing Cash Flow Streams (L01) You've just joined the investment banking firm of Dewey, Cheatum, and Howe. They've offered you two different salary arrangements. You can have $67.000 per year for the next two years, or you can have $56,000 per year for the next two years, along with a $12.000 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 10 percent compounded monthly, what is the value today of each option? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) Option 1 Option 2

Answer 1

rate positively..

		Option _1
			Computation of present value
			year	Cash flow	PVIF @ 10%	present value
			1	67000	0.90909091	60,909.09
			2	67000	0.82644628	55,371.90
						116,280.99
		Ans =			116,280.99
		Option _2
			Computation of present value
			year	Cash flow	PVIF @ 10%	present value
			0	12000	1	12,000.00
			1	56000	0.90909091	50,909.09
			2	56000	0.82644628	46,280.99
						109,190.08
		Ans =			109,190.08