In: Finance
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.
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.