Suppose you just graduated from UCR and have 2 offers. The first is a job offer

Question

Suppose you just graduated from UCR and have 2 offers. The first is a job offer at Jobs 'a US with a fixed salary schedule which paid S45,000. You will expect to hold this position for 40 years and then retire. The second offer is acceptance to a 2 year master's program which will cost $35,000 a year. Afier you earn your master's degree, you expect to earn S70,000lyear for the following 38 years, at which point you will retire. The discount rate is 10% All salary payments are made at the end of the year while tuition is paid at the start of the year Compare the net present value of each option. Which should you take?

Explanation / Answer

First offer:

NPV = 45000/(1+0.1)1 + ... + 45000/(1+0.1)40

NPV = $440,057.28

Second offer:

NPV = -35000/(1+0.1)1 - 35000/(1+0.1)2 + 70000/(1+0.1)3 + ... + 70000/(1+0.1)40

NPV = $502,302.15

Thus, second offer of studying first must be chosen.

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