Congratulations! You Have Just Been Offered Your Dream Job

Congratulationsyou Have Just Been Offered Your Dream Job After Grad

Congratulationsyou Have Just Been Offered Your Dream Job After Grad

CONGRATULATIONS!!! You have just been offered your dream job after graduating Summa Cum Laude from Jacksonville University. In response to your negotiations concerning your compensation package, the company has offered you a couple of different stock options in addition to the agreed upon salary. Under the first option, you would receive stocks with a value of $1,000,000 at the end of each year. This option also includes an additional $8,000,000 bonus that you would receive for staying at the company for 3 years. Under the second option, you would receive stocks with a value of $2,000,000 at the end of each year. This option also includes an additional $4,000,000 bonus that you would receive for staying at the company for 3 years. Assume that these stocks grow at a rate of 11% compounded monthly. Moreover, assume that you will leave the company at the end of your fourth year to start your own firm. Which option will you choose. Your formal solutions should include ... The overall goal and/or purpose. The given information A time-line for each option The future value of each option at the time you plan to leave the company Your conclusion

Paper For Above instruction

Introduction

The decision between two potential compensation packages involves analyzing the future value of stock options and bonuses based on different annual stock values, growth rates, and bonuses received after a specified period. The primary goal of this analysis is to determine which stock option offers the higher financial benefit at the end of four years, considering the growth of stocks and accumulated bonuses. This decision is significant because it impacts long-term financial planning and career trajectory, aligning with your aspirations as a recent graduate planning to start your own firm.

Given Information

- Option 1:

- Annual stock value: $1,000,000 (receivable at the end of each year)

- Bonus after 3 years: $8,000,000

- Stocks grow at 11% compounded monthly

- Option 2:

- Annual stock value: $2,000,000 (receivable at the end of each year)

- Bonus after 3 years: $4,000,000

- Stocks grow at 11% compounded monthly

- Time horizon:

- 4 years, with the decision point at the end of Year 4

- Additional assumptions:

- You will leave the company at the end of Year 4

- Stocks are compounded monthly at an annual rate of 11%

Time-line of each option

- Option 1:

- End of Year 1: Receive $1,000,000 in stocks

- End of Year 2: Receive $1,000,000 in stocks

- End of Year 3: Receive $1,000,000 in stocks + $8,000,000 bonus

- End of Year 4: Stocks from Year 1 accrue additional growth; stocks from Year 2 accrue additional growth; stocks from Year 3 accrue additional growth

- Option 2:

- End of Year 1: Receive $2,000,000 in stocks

- End of Year 2: Receive $2,000,000 in stocks

- End of Year 3: Receive $2,000,000 in stocks + $4,000,000 bonus

- End of Year 4: Stocks from Year 1 accrue additional growth; stocks from Year 2 accrue additional growth; stocks from Year 3 accrue additional growth

Future Value Calculations

To determine which option yields a higher benefit, calculate the future value of each stock payment accumulated over four years, including the bonuses received at Year 3, considering the 11% monthly compounded growth.

Calculation of future value of stocks:

The formula for future value (FV) with monthly compounding is:

FV = PV × (1 + r/n)^(nt)

where:

- PV = present value (initial amount)

- r = annual interest rate (11% or 0.11)

- n = number of compounding periods per year (12)

- t = number of years

Option 1:

- Stocks received at end of each year are grown for the remaining years until Year 4.

- Stocks from Year 1 stock at Year 4: PV = $1,000,000, t = 3 years

- Stocks from Year 2 at Year 4: PV = $1,000,000, t = 2 years

- Stocks from Year 3 at Year 4: PV = $1,000,000, t = 1 year

- Bonus received at Year 3: grow for 1 year

Calculations:

- FV from Year 1 stock:

FV = 1,000,000 × (1 + 0.11/12)^(12×3)

- FV from Year 2 stock:

FV = 1,000,000 × (1 + 0.11/12)^(12×2)

- FV from Year 3 stock:

FV = 1,000,000 × (1 + 0.11/12)^(12×1)

- Bonus at Year 3:

Grow for 1 year:

FV = 8,000,000 × (1 + 0.11/12)^(12×1)

Option 2:

- Stocks received at end of each year are grown for the remaining years until Year 4.

- Stocks from Year 1: PV = $2,000,000, t = 3 years

- Stocks from Year 2: PV = $2,000,000, t = 2 years

- Stocks from Year 3: PV = $2,000,000, t = 1 year

- Bonus received at Year 3:

- Grow for 1 year, PV = $4,000,000

Calculations:

- FV from Year 1 stock:

FV = 2,000,000 × (1 + 0.11/12)^(12×3)

- FV from Year 2 stock:

FV = 2,000,000 × (1 + 0.11/12)^(12×2)

- FV from Year 3 stock:

FV = 2,000,000 × (1 + 0.11/12)^(12×1)

- Bonus at Year 3:

FV = 4,000,000 × (1 + 0.11/12)^(12×1)

Summing these future values for each option provides the total expected benefit at the end of Year 4.

Results:

- Calculating each FV yields:

- For Option 1:

- Year 1 stocks at Year 4: approximately $1,000,000 × 1.347 = $1,347,000

- Year 2 stocks at Year 4: approximately $1,000,000 × 1.204 = $1,204,000

- Year 3 stocks at Year 4: approximately $1,000,000 × 1.075 = $1,075,000

- Bonus at Year 3 (grown for 1 year): $8,000,000 × 1.075 ≈ $8,600,000

- Total = ~$1,347,000 + $1,204,000 + $1,075,000 + $8,600,000 ≈ $12,226,000

- For Option 2:

- Year 1 stocks at Year 4: approximately $2,000,000 × 1.347 ≈ $2,694,000

- Year 2 stocks at Year 4: approximately $2,000,000 × 1.204 ≈ $2,408,000

- Year 3 stocks at Year 4: approximately $2,000,000 × 1.075 ≈ $2,150,000

- Bonus at Year 3 (grown for 1 year): $4,000,000 × 1.075 ≈ $4,300,000

- Total = ~$2,694,000 + $2,408,000 + $2,150,000 + $4,300,000 ≈ $11,552,000

Conclusion:

The calculation indicates that Option 1 offers a higher total future value at the end of four years, approximately $12.226 million, compared to about $11.552 million for Option 2. Therefore, based on the growth of stocks and accumulated bonuses, choosing Option 1 is the more financially advantageous decision. This analysis demonstrates the importance of considering growth rates and timing when evaluating complex compensation packages.

Summary

The decision ultimately benefits from the higher compounded growth and larger bonus in Option 1, making it the preferable choice for long-term financial gain. While immediate cash flows are similar in structure, the maturation and growth of stocks significantly impact total value, reaffirming the importance of thorough financial analysis in career decisions.

References

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