Question

Is it worth going to college? Let's suppose that a typical college educated professional makes 85,000 dollars per year and a high school graduate makes 45,000 dollars per year. The direct costs of college (tuition, books, and so on) are 16,000 dollars a year (and a college degree takes 4 years). For the purpose of this exercise, consider that the earnings are constant until the age of 64; and thereafter, the earnings are zero. (a) Suppose that John is now eighteen, and he is contemplating on the possibility of going to college, should he go? Use a discount rate of 10 percent for your calculations. You should have 47 terms in the sum of the present value, one term for each year that elapses between ages of 18 and 64. (b) Now suppose that he is also a good racer. However, racing is a risky sport, and at most he can race until the age of 30. The contract that he can get is 200k dollars a year. Using the same discount rate as before, namely 10%, what should he do? Show your calculations.

Answer 1

Year 18 to 64 number of years = 47 (given)

Discount rate, i=10%

If he straight a way start working he will earn $45,000

Present value of this option will be

PV = 45,000(P/A,10%,47)

Second option he should go to college and pay $ 16,000 for four years then start working for $ 85,000 per year

Now calculate present value of this option

PV = -16,000(P/A,10%,4) + 85,000(P/F,10%,4)(P/A,10%,43)

Present worth of going college is greater tha .PW of starting working.

Select the second alternative.

2. Now when he becomes athlete then he will earn hoti an age of 30 years that is 13 years.

PW = 200,000(P/A,10%,13)

PW = 200,000* 7.103356

PW = $ 1,420,671

Select becoming athlete.

I have solved it using excel as well in both manual as well as excel getting the same result.

I first question select the option go to college.

In second case select the option of becoming an athlete.

Refer the attached picture below. This is for your kind reference please request you to contact before rating up will be obliged to you for your generous help

Please contact if having any query. Thank you.