Your New Employer Makes You an Unusual Salary Offer

question 8

Multiple Choice

Your new employer makes you an unusual salary offer.Choice A is to receive a $20,000 lump sum today and another $50,000 in one year.Choice B is to receive nothing today,and $80,000 in one year.You carefully consider what you have learned in your finance class and determine that the risk and uncertainty of this offer as well as the difficulty of having to find money for living expenses for one more year leads you to conclude that the appropriate interest rate at which to evaluate these offers is 40%.Based strictly on the results of your calculations,which offer should you accept and why?

• A)Choice A because the present value of $57,142.86 is greater than the PV of $55,714.29 for Choice B.
• B)Choice A because the present value of $70,000 is greater than the PV of $57,142.86 for Choice B.
• C)Choice B because the present value of $80,000 is greater than the PV of $70,000 for Choice A.
• D)Choice B because the present value of $57,142.86 is greater than the PV of $55,714.29 for Choice A.

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