Answer:
$775,100
Explanation:
A fix Payment for a specified period of time is called annuity. The discounting of these payment on a specified rate is known as present value of annuity.
In this question a fix payment of $65,000 is being made as salary which will grow by 2% and Required interest rate will be 10%. The effective interest rate for this payment is 8% ( 10% - 2%).
The present value of salary can be calculated as follow
PV of annuity = P x [ ( 1- ( 1+ r )^-n ) / r ]
Present value of Salary = $65,000 x [ ( 1- ( 1 + 8% )^-40 ) / 8% ]
Present value of Salary = $65,000 x [ ( 1- ( 1.08 )^-40 ) / 0.08 ]
Present value of Salary = $775,100
