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Davenport Inc. offers a new employee two options. First, the employee can receive a one-time signing bonus at the date of employment. Second, the employee can take $31,000 at the date of employment and another $58,000 three years later. Assuming the employee's time value of money is 7% annually, what single payment in the first option would be equal to the total of the payments in the second option

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Tundexi

Answer:

$78,345.28

Explanation:

Present value of amount paid later = Amount paid three years later * PV of $1

Present value of amount paid later = $58,000 * [1/(1.07)^3]

Present value of amount paid later = $58,000 * 0.816297877

Present value of amount paid later = $47345.276866

Present value of amount paid later = $47345.28

Present value of second option = $31,000 + $47,345.28

Present value of second option = $78,345.28

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