Joey receives two job offers: Job A has a starting annual salary of $90,000 and an expected annual salary growth of 7%. Job B has a starting annual salary of $110,000 and an expected salary growth of 5%. Joey is 30 years old and plans to retire when he turns 65. Ignore bonuses, pensions, other compensations and taxes; all cash flows will be made at the end of each year. Joey discounts future cash flows at an effective annual rate of 10%.
- a. Which offer has a greater present value?
- b. If Joey plans to retire when he turns 55 years old, which offer has a greater present value?
- c. If we consider income taxes, could your answers to (a) and (b) be different? Why?