Fresh Out of College, You Are Negotiating with Your Prospective

question 101

Multiple Choice

Fresh out of college, you are negotiating with your prospective new employer. They offer you a signing bonus of $2,000,000 today or a lump sum payment of $2,500,000 three years from now. If
You can earn 7% on your invested funds, which of the following is true?

• A) Take the signing bonus because it has the lower present value.
• B) Take the signing bonus because it has the higher future value.
• C) Take the lump sum because it has the higher present value.
• D) Take the lump sum because it has the lower future value.
• E) Based on these numbers, you are indifferent between the two.

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Definitions:

Favorable Spending Variance

A situation in which actual spending is less than the budgeted or projected amount, indicating cost efficiency.

Actual Cost

The real cost incurred in the production of goods or services, including all direct and indirect expenses.

Static Planning Budget

A budget based on a single level of activity, not adjusted for changes in activity levels during the period.

Static Planning Budget

A budget prepared for a single level of activity, not adjusting for changes in volume or activity.