Question

A student is considering whether to finish their university program in four​ consecutive​ years, or take a year off and work for some extra​ cash.​

​​Required:

​​a. Identify at least two revenues or costs that are relevant to making this decision. Explain why each is relevant.

​​b. Identify at least two costs that would be considered sunk costs for this decision.

​​c. Comment on at least two qualitative consideration for this decision.

Answer 1

a.

Relevant costs and revenues for the decision making:

1.University fee and related expenses: The student's ability to pay the university fee and other amounts related to books and examinations is relevant since the student can not complete the degree unless he pays the sums specified.

2.Amount earned during the year off: It is the amount the student is going to earn during the year off otherwise he will not earn such amount. The revenue matters since the option stuck the student in the college for one more year then his regular term of program

3.Amount the student can earn for the immediate next year after completing the program:

It is the amount the student is going to earn during the immediate next year after completing the university program without any breaks

b.

Sunk costs:

These are the amounts the student will incur whether the student attend the college or not.

1. Rent

2. Expenses related to food and clothes

c.

Qualitative considerations:

1. Experience earned during the year off is most important qualitative consideration. It is something that can be measured precisely in terms of cash.

2. Easing financial burden and reduced mental stress for being an independent is also a significant qualitative consideration.