Present worth of the earnings

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Reference no: EM13732365

1- Suppose that the salary for a recent industrial engineering graduate is expected to increase by 12% per year from a base of $52,000 over the next five years. If the interest rate is taken to be 10% during the period, the present worth of the earnings would be ______?

2- An alumnus of M.I.T who “made good” has decided to donate to the college’s Excellence Fund and has offered the college any one of the following three plans:

Plan A: Plan B: Plan C:

$60,000 now

$16,000 per year for 12 years beginning 1 year from now

$50,000 three years from now and another $80,000 five years from now

The only condition placed on the donation is that the college agrees to append the money on research related to the advancement of robotics. The college would like to select the plan which maximizes the buying power of the dollars received, so it has instructed one industrial engineer student evaluating the plans to account for inflation in their calculations. If the college can earn 12% per year on its ready-assets account and the inflation rate is expected to be 11% per year, which plan should the college accept?

Reference no: EM13732365

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