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fresh out of college ypu are negotiating with your prospective new wmployer they offer you a...

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

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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

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