An executive is to receive a $1,500,000 signing bonus today, $2,500,000 one year from now, $2,750,000...

Question

Question

An executive is to receive a $1,500,000 signing bonus today, $2,500,000 one year from now, $2,750,000 two years from now, and $3,200,000 three years from now. Assuming an annual discount rate of 12% and ignoring tax considerations, would the executive be better off receiving $7,500,000 today?

Answer 1

Answer #1

Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)

=1,500,000+2,500,000/1.12+2,750,000/1.12^2+3,200,000/1.12^3

=$8,202,122.81(Approx)

Hence executive would not be better off receiving $7,500,000 today.

Answer 2

Similar Homework Help Questions

If we will receive $100 per year beginning one year from now for a period of three years with a 12% discount rate, what...

If we will receive $100 per year beginning one year from now for a period of three years with a 12% discount rate, what would be the value of our investment today? $230 $240 $250 O $260
If you invest $1,000 today, you will receive $400 in one year from now and $750...

If you invest $1,000 today, you will receive $400 in one year from now and $750 in two years from now. If your require a 12% return on investments of this risk, should you take the investment?
You will receive $1000 one year from now, $800 two years from now, $860 three years...

You will receive $1000 one year from now, $800 two years from now, $860 three years from now, and $1800 four years from now. If the discount rate is 10 percent,calculate the present value of these cash flows.

2. You will receive $5,000 one year from now, 6000 three years from now, and 7000...

2. You will receive $5,000 one year from now, 6000 three years from now, and 7000 five years from now in real terms. Each payment will be received at the end of the period with the first payment occurring one year from today. The relevant nominal discount rate is 9.625 percent and the inflation rate is 2.3 percent. What are your winnings worth today in real dollars? Hra 151 25 4. ABC Corp. issued a 25-year maturity bond in 2001...
You lend $110 today and receive a promise for repayment 10 years from now of $237....

You lend $110 today and receive a promise for repayment 10 years from now of $237. What is implied effective annual interest rate? Round your answer to 4 decimal places. For example if your answer is 3.205%, then please write down 0.0321.
#4 Part 4 The Capital Budgeting Process 4. You will receive $6,800 three years from now....

#4 Part 4 The Capital Budgeting Process 4. You will receive $6,800 three years from now. The discount rate is 10 percent. a. What is the value of your investment two years from now? Multiply $6,800 X (1/1.10) or divide by 1.10 (one year's discount rate at 10 percent). b. What is the value of your iaveuitment ora year from now? Multiply your answer to part a by (1/1.10). c. What is the value of your invesanent today? Multiply your...

You receive $100 today, $200 in one year, and $300 in two years. If you deposit...

You receive $100 today, $200 in one year, and $300 in two years. If you deposit these cash flows into an account earning 12 percent, the value in the account three years from now is ___ _ **Please answer with formula and how to enter into calculator.**
Question : Time Value Of Money John will receive 5000 in one year from now ,...

Question : Time Value Of Money John will receive 5000 in one year from now , Once he gets that money he wants to put it into a 12 year savings scheme which would give him a rate of 7% for 12 years What is going to be the amount that John .will receive from this 12 year savings plan?
Your answer is partially correct. Pronghorn Corporation, having recently issued a $20,134, 100, 15-year bond issue,...

Your answer is partially correct. Pronghorn Corporation, having recently issued a $20,134, 100, 15-year bond issue, is committed to make annual sinking fund deposits of $613,500. The deposits are made on the last day of each year and yield a return of 10%. Click here to view factor tables Will the fund at the end of 15 years be sufficient to retire the bonds? Future value of an ordinary annuity $ Will funds be sufficient? e Textbook and Media Your...

You want to synthetically create a one-year 100,000 tenge loan for yourself two years from now....

You want to synthetically create a one-year 100,000 tenge loan for yourself two years from now. You note that banks will lend today at the rate of 14% for two years and 12% for three years. Banks also will take time-deposits at 9% for two years and 10% for three years.