Question

Tom, age 32, is a Tom believes that he will have average annual earnings of $80,000...

  1. Tom, age 32, is a Tom believes that he will have average annual earnings of $80,000 per year up until he retires in 30 years. Roughly 50 percent of Tom's average annual earnings are used to pay taxes, insurance premiums, and for self-maintenance; with the balance available for family support. Assuming a 6% interest rate, what is Tom's human life value?

Homework Answers

Answer #1

Average annual earnings = $80,000

annual earnings available after taxes and living expenses = $80,000 * 50% = $40,000

To calculate the human life value, we have to discount 30 years of cash flows of $40,000 each back to the present, using a 6% discount rate.

This is calculated using PV function in Excel with these inputs :

rate = 6%

nper = 30

pmt = -40,000

PV is calculated to be $550,593

this is the human life value of Tom

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