Question

Linda works for a multinational company in Tokyo with a salary of $11500 per year. She is now being transferred to a branch office in Kobe and your salary will be reduced 9% with this transfer. Although your salary is reduced she accepts this transfer. She knows that the cost of living index in Tokyo is 232 where it is 165 in Kobe. Over the next 12 years, what is the FW (future value) of her extra income/improved lifestyle (through the reduced cost of living) from having made this move? Her MARR is 6% per year.

Answer 1

Salary in Tokyo = $11,500

Salary in Kobe would be = $11,500 * 0.91 = $10,465

Cost of living Index in Tokyo = 232

Cost of living Index in Kobe = 165

Cost of shifting to Kobe from Tokyo = [10,465 * (165 / 232)] = 7,442.78

Saving from shifting to Tokyo from Kobe = 10,465 - 7,442.78 = 3,022.22

MARR = 6%

Future value of money is calculated as: [Saving * (1 + MARR)^^{Money saved for years}]

Year	Saving	Money saved for year	Future value
1	3022.22	11	5737.08
2	3022.22	10	5412.34
3	3022.22	9	5105.98
4	3022.22	8	4816.96
5	3022.22	7	4544.30
6	3022.22	6	4287.08
7	3022.22	5	4044.41
8	3022.22	4	3815.48
9	3022.22	3	3599.51
10	3022.22	2	3395.77
11	3022.22	1	3203.55
12	3022.22	0	3022.22
			50,984.67

Future value of shifting to Kobe is 50,984.67