Suppose you get your master’s degree in civil engineering and have the three fol
ID: 2750865 • Letter: S
Question
Suppose you get your master’s degree in civil engineering and have the three following career options upon graduation: you can work for a governmental agency, you can work for an established firm, or you can work for a startup company. If you work for the governmental agency, you will have a starting salary of $60,000 with guaranteed annual salary increases of 3% per year. If you work for the established firm, your starting salary will be $65,000 with 0 to 5% annual salary increases, distributed uniformly. If you work for the startup firm, you will have a starting salary of $55,000 with annual salary increases of -6% (i.e., salary decreases) to +14%, distributed uniformly. You plan on having a 30-year career and value money at 5%.
1. Conduct sensitivity testing/risk analysis to run 30 trials with randomly drawn salary increases or decreases across each year, for each alternative. This means that your salary may go up one year, but down the next. Record the NPV for each trial.
2. From your samples, determine the average, min, max and standard deviation of each alternative.
3. Use a scatter plot to show the sampled salary NPVs. Plot salary NPV along the y-axis and observation # along the x-axis. Plot all three series in the same chart, and be sure to label each series and label the chart axes.
4. Based on potential salary alone, which alternative would you pick, and why?
Explanation / Answer
Ans1: NPV for each alternative for 30 trials are
If employed with Govt. Job = 1414613
If employed with Established Firm = 1653558
If employed with Start up firm = 1144563
Ans 2: The Standard Deviation for each alternatives is
Ans 4 Based on each trials for each alternatives one should work with a well established firm as the Net Present Value (NPV) for it is highr than the Government Job & Start up firms.
Ans 3 : Due to technical disparity plotting on bar chart paper is not possible to be provided.
5% Money Value Years 1 Govt. Job NPV-GJ Estl Firm NPV-Estl Firm Startup firm NPV-Start up 0 1 60,000 60,000 65,000 65,000 55,000 55,000 1 0.952381 61,800 58,857 68,250 65,000 55,000 52,381 2 0.907029 63,654 57,736 71,663 65,000 55,000 49,887 3 0.863838 65,564 56,636 75,246 65,000 55,000 47,511 4 0.822702 67,531 55,558 79,008 65,000 56,100 46,154 5 0.783526 69,556 54,499 82,958 65,000 57,222 44,835 6 0.746215 71,643 53,461 87,106 65,000 58,366 43,554 7 0.710681 73,792 52,443 89,719 63,762 61,285 43,554 8 0.676839 76,006 51,444 92,411 62,547 64,349 43,554 9 0.644609 78,286 50,464 95,183 61,356 67,566 43,554 10 0.613913 80,635 49,503 98,039 60,187 70,945 43,554 11 0.584679 83,054 48,560 1,00,980 59,041 73,073 42,724 12 0.556837 85,546 47,635 1,04,009 57,916 75,265 41,911 13 0.530321 88,112 46,728 1,07,130 56,813 77,523 41,112 14 0.505068 90,755 45,838 1,10,344 55,731 79,849 40,329 15 0.481017 93,478 44,965 1,13,654 54,669 82,244 39,561 16 0.458112 96,282 44,108 1,15,927 53,107 80,600 36,924 17 0.436297 99,171 43,268 1,18,245 51,590 78,988 34,462 18 0.415521 1,02,146 42,444 1,20,610 50,116 77,408 32,165 19 0.395734 1,05,210 41,635 1,23,023 48,684 73,537 29,101 20 0.376889 1,08,367 40,842 1,25,483 47,293 69,861 26,330 21 0.358942 1,11,618 40,064 1,27,993 45,942 69,162 24,825 22 0.34185 1,14,966 39,301 1,30,553 44,629 68,470 23,407 23 0.325571 1,18,415 38,553 1,33,164 43,354 73,263 23,852 24 0.310068 1,21,968 37,818 1,35,827 42,116 78,392 24,307 25 0.295303 1,25,627 37,098 1,38,543 40,912 83,879 24,770 26 0.281241 1,29,395 36,391 1,44,085 40,523 92,267 25,949 27 0.267848 1,33,277 35,698 1,49,849 40,137 1,01,494 27,185 28 0.255094 1,37,276 35,018 1,55,843 39,754 1,11,643 28,479 29 0.242946 1,41,394 34,351 1,62,076 39,376 1,26,157 30,649 30 0.231377 1,45,636 33,697 1,68,559 39,001 1,42,557 32,984 Net Present Value 14,14,613 16,53,558 11,44,563Related Questions
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