Question

fresh out of college ypu are negotiating with your prospective new wmployer they offer you a signing bonus of omd 1,000,000 today or a lump sum payment of omr 1,250,000 three year from now. if you can earn 7% on your invested funds, which of the following is true?

a based on these numbers you are indifferent between the two

b- take the signing bonus because it has the lower present value

c- take the lumps sum because it has the lower future value

d-take the signing bonus because it has the higher future value

e- thke the lump sum because it has the higher present value

Answer 1

Present Value of Lump Sum Payment = Lump Sum Value / (1+r)^n

= 1,250,000 / (1+0.07)^3

= 1,020,372.35

While the signing bonuis today is 1,000,000.

So, here present Value of lupm sum is more than the Signing bonus today.

Therefore, Option e is correct. take the lump sum because it has the higher present value

NOTE: The answer to your question has been given below/above. If there is any query regarding the answer, please ask in the comment section. If you find the answer helpful, do upvote. Help us help you.