Question

Note the first 5 questions still from chapter 2 with unequal payments and using gradient formulas Aerospace contractor has four employees whose combined salaries through the end of this year are $250,000. If the contractor expect to give an average raise of 5% each year, calculate the present worth of the employees' salaries over the next 5 years. Let i-12% per year 1.

Answer 1

ANSWER:

I = 12%

n = 5 years

cash flow in year 1 = $250,000

cash flow in year 2 = cash flow in year 1 + raise in average salary * cash flow in year 1 = 250,000 + 5% * 250,000 = 250,000 + 12,500 = 262,500

cash flow in year 3 = cash flow in year 2 + raise in average salary * cash flow in year 2 = 262,500 + 5% * 262,500 = 262,500 + 13,125 = 275,625

cash flow in year 4 = cash flow in year 3 + raise in average salary * cash flow in year 3 = 275,625 + 5% * 275,625 = 275,625 + 13,781 = 289,406.3

cash flow in year 5 = cash flow in year 4 + raise in average salary * cash flow in year 4 = 289,406.3 + 5% * 289,406.3 = 289,406.3 + 14,470 = 303,876.6

pw = cash flow in year 1(p/f,i,n) + cash flow in year 2(p/f,i,n) + cash flow in year 3(p/f,i,n) + cash flow in year 4(p/f,i,n) + cash flow in year 5(p/f,i,n)

pw = 250,000(p/f,12%,1) + 262,500(p/f,12%,2) + 275,625(p/f,12%,3) + 289,406.3(p/f,12%,4) + 303,876.6(p/f,12%,5)

pw = 250,000 * 0.8929 + 262,500 * 0.7972 + 275,625 * 0.7118 + 289,406.3 * 0.6355 + 303,876.6 * 0.5674

pw = 223,225 + 209,265 + 196,189.9 + 183,917.7 + 172,419.6

pw = 985,017.1

The present worth of the employees salaries is $985,017.1