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Your salary next year is expected to be $40,000. Assume you expect your salary to grow...

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Your salary next year is expected to be $40,000. Assume youexpect your salary to grow at a steady rate of 4% per year foranother 25 years. If the appropriate cost of capital (aka discountrate) is 9%, what is the PV today of your future salary cashflowstream? [For simplicity, assume the salary amounts are at the endof each of the next 25 years.] Please provide calculations usingexcel and financial calculator.

Answer & Explanation Solved by verified expert
4.2 Ratings (614 Votes)

Year Salary PVF at 9% Present value
1 40000 0.917431 36697.25
2 41600 0.84168 35013.89
3 43264 0.772183 33407.75
4 44994.56 0.708425 31875.28
5 46794.34 0.649931 30413.11
6 48666.12 0.596267 29018.01
7 50612.76 0.547034 27686.91
8 52637.27 0.501866 26416.87
9 54742.76 0.460428 25205.09
10 56932.47 0.422411 24048.89
11 59209.77 0.387533 22945.73
12 61578.16 0.355535 21893.17
13 64041.29 0.326179 20888.9
14 66602.94 0.299246 19930.69
15 69267.06 0.274538 19016.44
16 72037.74 0.25187 18144.13
17 74919.25 0.231073 17311.83
18 77916.02 0.211994 16517.71
19 81032.66 0.19449 15760.02
20 84273.97 0.178431 15037.08
21 87644.93 0.163698 14347.3
22 91150.72 0.150182 13689.17
23 94796.75 0.137781 13061.23
24 98588.62 0.126405 12462.09
25 102532.2 0.115968 11890.43
26 106633.5 0.106393 11345
Present value 564024
Answer is $ 564024

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Transcribed Image Text

Your salary next year is expected to be $40,000. Assume youexpect your salary to grow at a steady rate of 4% per year foranother 25 years. If the appropriate cost of capital (aka discountrate) is 9%, what is the PV today of your future salary cashflowstream? [For simplicity, assume the salary amounts are at the endof each of the next 25 years.] Please provide calculations usingexcel and financial calculator.

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