Problem 636 Comparing Cash Flow Streams LO1 Youve just joine

Problem 6-36 Comparing Cash Flow Streams [LO1 You\'ve just joined the investment banking firm of Dewey, Cheatum, and Howe. They\'ve offered you two different salary arrangements. You can have $65,000 per year for the next two years, or you can have $54,000 per year for the next two years, along with a $10,000 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 8 percent compounded monthly, what is the PV for both the options? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) PV Option 1 Option 2

Solution

Option 1

FV = 0, PMT = 65,000/12, N = 24, rate = 8%/12

use PV function in Excel

value of option 1 = 119,765.44

Option 2:

FV = 0, PMT = 54,000/12, N = 24, rate = 8%/12

use PV function in Excel and add 10,000

value of option 2 = 109,497.45