Explore BrainMass

Explore BrainMass

    Time Value of money: Present Value

    Not what you're looking for? Search our solutions OR ask your own Custom question.

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    Sally Hamilton has performed well as the chief financial officer of the Maxtech Computer Company and has earned a bonus. She has a choice among the following three bonus plans:
    1. A $50,000 cash bonus paid now;
    2. A $10,000 annual cash bonus to be paid each year over the next six years, with the first $10,000 paid now.
    3. A three-year $22,000 annual cash bonus with the first payment due three years from now.
    Requirements:
    1. Evaluate the three alternative bonus plans. Sally can earn a 6% annual return on her investments. Which option should she take. Please show all calculations to support your answer.

    © BrainMass Inc. brainmass.com March 4, 2021, 7:54 pm ad1c9bdddf
    https://brainmass.com/business/the-time-value-of-money/time-value-of-money-present-value-131399

    Solution Preview

    Sally Hamilton has performed well as the chief financial officer of the Maxtech Computer Company and has earned a bonus. She has a choice among the following three bonus plans:
    1. A $50,000 cash bonus paid now;
    2. A $10,000 annual cash bonus to be paid each year over the next six years, with the first $10,000 paid now.
    3. A three-year $22,000 annual cash bonus with the first payment due three years from now.
    Requirements:
    1. Evaluate the three alternative bonus plans. Sally can earn a 6% annual return on her investments. Which option should she take. Please show all calculations to support your answer.

    Note: the ...

    Solution Summary

    Three alternative bonus plans are evaluated by calculating the present value of cash flows.

    $2.49

    ADVERTISEMENT