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part (c) Under the terms of his salary agreement, president Adams Walters has an option of receiving either an immediate bonus of $77,000, or a deferred bonus of $98,000 payable in 10 years. Click here to view factor tables. Ignoring tax considerations and assuming a relevant interest rate of 4%, which form of settlement should Walters accept?
Present value of deferred bonus $__________
Expert Answer
Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)
=$98000/1.04^10
=$98000*0.675564
=$66205.29(Approx).[please note that intermediate calculations have not been rounded off].
Hence immediate bonus of $77,000 should be accepted.
