Question

In: Economics

Joe decides to take a 1-year intensive course in data processing after high school graduation where...

Joe decides to take a 1-year intensive course in data processing after high school graduation where direct costs=$1,000. Forgone earnings in year 1 are $5,000 from a part-time job.

At the end of this year, Joe can work for a computer company and expects to have earnings of $18,000 at the beginning of the year after his education (discount 1 year from now), $18,500 in year 2 (discount 2 years from now) and $19,000 in year 3 (discount 3 years from now).

If he goes to work with just a high school degree, he will earn $15,500 in each of these three years (we will assume his part-time job becomes full-time).

Interest is 10%.

  1. What are the total costs of going to school? These are paid upfront and don’t need to be discounted.
  1. What is the PV of the benefits of going to school? The benefit is the extra money he earns from having the certificate. Calculate one PV stream only.
  1. Should Joe get the certificate? Why or why not?

Solutions

Expert Solution

Rahul Sunny answered 2 years ago
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