Make the employee indifferent between the two options

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Reference no: EM131996048

IBM offers a new MBA employee a lump sum signing bonus at the date of employment. (January, 01). Alternatively, the employee can take $5,000 at the date of employment plus $10,000 at the end of each of his first three years of service. Assuming the interest rate over the next three years is 10% annually, Would you recommend to the employee to accept a lump sum of $25,000 at employment date? Explain in detail. What is the amount that would make the employee indifferent between the two options? (ie Ignore taxes, inflation and risk.)

Reference no: EM131996048

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