Reference no: EM132231771

Your MARR is 10% per year. It is currently Year 0. You have been offered a job. Your starting salary, paid in Year 1, will be $100,000, and your salary will go up by 2% every year. You expect to retire at the end of Year 40, meaning that you will be paid your salary for the first time in Year 1, and for the last time in Year 40.

a. Before you accept the offer, you are interested in knowing what this works out to per year. Calculate the equivalent annual value of your salary, from Year 1 to Year 40. That is, turn the salary payments into an equivalent annuity that pays the same amount 'A' each year, is first positive in Year 1 and last positive in Year 40. Show your work.

Hint: The cash flow is a geometric series with g = 2%. We have a conversion factor that will turn a geometric series into a present value, P. Once you have that present value P, you can turn it into an equivalent annuity, A, using the appropriate conversion factor.