What is the undiscounted opportunity cost over ten years

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Case Study: There are two forms of compensation from every job: Pecuniary compensation; and Non-pecuniary compensation. Pecuniary compensation is the cash payments (salaries, wages, bonuses, etc.) while non-pecuniary compensation encompasses the non-cash utility we get from the work (fulfillment, dependability of co-workers, certainty of work environment, friendships, etc.).

A good friend is considering changing jobs and seeking your advice. The current job has provided a consistent 5% growth in pecuniary compensation over the past several years and every indication is that this will continue into the future. The new job promises a 9% growth rate over time, guaranteed. The non-pecuniary risk discount defines the stability of the non-pecuniary compensation. Because of the uncertainty about the new company, you assume that the non-pecuniary risk discount rate is 10% and decays to 0% by Year 5, when familiarity with the new company will be equal to (or better than) the current company.

Question: What is the undiscounted opportunity cost over ten years of taking the new job instead of staying with the current job?

Reference no: EM133328109

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