Sally Hamilton has performed well as the chief financial officer of the Maxtech Computer Company and has
Question:
Sally Hamilton has performed well as the chief financial officer of the Maxtech Computer Company and has earned a bonus. She has a choice among the following three bonus plans:
1. A $50,000 cash bonus paid now.
2. A $10,000 annual cash bonus to be paid each year over the next six years, with the first $10,000 paid now.
3. A three-year $22,000 annual cash bonus with the first payment due three years from now.
Required:
Evaluate the three alternative bonus plans. Sally can earn a 6% annual return on her investments.
1. What is the present value of the first alternative?
2. What is the present value of the second alternative?
3. What is the present value of the third alternative?
Step by Step Answer:
Intermediate Accounting
ISBN: 978-1260481952
10th edition
Authors: J. David Spiceland, James Sepe, Mark Nelson, Wayne Thomas