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A company is offering a bonus plan to its employees. the company will set aside 1% of sales as a bonus. the first year sales are expected to be 5,000,000 and increase 20 % per year . at an interest rate of 10 % what is the present value of this bonus over a 5 year period of time

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hancesoome

Calculating Sales Amount:

1st Year Sales =        $5,000,000

Every the sales were increased by 20%

2nd Year Sales = $5,000,000 + ($5,000,000*20%)

                          = $6,000,000

3rd Year Sales = $6,000,000 + ($6,000,000 * 20%)

                      = $7,200,000

4th Year Sales = $7,200,000 + ($7,200,000 *20%)

                     = $8,640,000

5th Year Sales = $8,640,000 + ($8,640,000 *20%)

                      = $10,368,000

Calculating Bonus Amount:

1st Year Bonus Amount = $5,000,000 * 1%

                                      = $50,000

2nd Year Bonus Amount = $6,000,000 * 1%

                                      = $60,000

3rd Year Bonus Amount = $7,200,000 * 1%

                                       = $72,000

4th Year Bonus Amount = $8,640,000 * 1%

                                       = $86,400

5th Year Bonus Amount = $10,368,000 * 1%

                                       = $103,680

Year         Bonus Amount         Present Value Factor 10%  Present Values

1                       $50,000                         0.909                             $45,450

2                      $60,000                         0.826                             $49,560          

3                      $72,000                         0.751                               $54,072          

4                      $86,400                         0.683                              $59,011.20

5                      $103,680                       0.621                               $64,385.28      

                                                          PresentValue                    $272,478.48

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