Each is worth 4 points. Show or explain your work for partial credit. Draymond wants to take a 2-year training course that costs $5,000 each year.

Each is worth 4 points. Show or explain your work for partial credit. Draymond wants to take a 2-year training course that costs $5,000 each year. His company promises a $1,000 raise for anyone who takes the course. Draymond currently makes $70,000 and will retire 10 years after completing the training. He will continue to work while he takes the training course. Assume a discount rate of 0.07.

What is the Present Value of the cost of taking the course?

What is the Present Value of the stream of income after completing the training?

Solutions

Expert Solution

The present value of the cost of taking the course = 5,000/(1 + 0.07) + 5,000/(1 + 0.07)^2

The present value of the cost of taking the course = 4,672.8971962617 + 4,367.1936413661

The present value of the cost of taking the course = $9,040.0908376278

Present Value of the stream of income after completing the training:

PMT = 1,000

n = 10

r = 0.07

Present Value of the stream of income after completing the training is $7,023.5815414286

The benefit of taking the course is less than the present value of the cost of taking the course. So, it is not worth taking the course.

jeff jeffy answered 2 years ago

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