Suzanne is a recent chemical engineering graduate, who has been offered a five-year contract at a remote location. She has been offered two choices. The first salary choice is a fixed salary of $75,000 per year. The second one has a starting salary of $65,000 with annual increases of 2% starting in year 2. For calculation purposes, assume that her salary is paid at the end of the year. If the interest rate is 9%, calculate the present value P1 for choice 1 and present value P2 for choice 2 and determine which choice is best.
a. P1 = $291,724 and salary choice 2 is better than salary choice 1.
b. P2 = $277,070 and salary choice 1 is better than salary choice 2.
c. P1 = $262,250 and salary choice 1 is better than salary choice 2.
d. Either P1 or P2 or both are more than $1000 different from properly calculated values for P1 and/or P2.
e. P2 = $277,170 and salary choice 2 is better than salary choice 1.