The cash inflows is $91,000 per year. In the Gaines company bonus program the “managers receive a bonus equal to 10 percent of the amount by which actual net present value exceeds the projected net present” (Ferrell, Gatewood, Ferrell, 2010). The net present value was based on $90,000 and they exceeded the net present value by $1,000. This is based on a five year investment return, which equals $5,000 times 10 percent. The bonus will be $500. If the company paid a bonus based on the $70,000 for five years at 10 percent Mr. Holt would have received a bonus of $10,500.
