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In: Finance

Write a 2-3 paragraph paper evaluating the lifetime NPV of yourcollege degree and post to the...

Write a 2-3 paragraph paper evaluating the lifetime NPV of yourcollege degree and post to the discussion board

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Expert Solution

My college degree provides me with several benefits and the primary benefits of my college degree are - higher starting annual salary, higher wage growth, higher benefits, lower unemployment rate, higher labor force participation rate, and lower occupation absence rate. I am a 25 year old male and have a bachelor’s degree in finance and accounting. With a retirement age of 65 years I have around 40 years of work career ahead of me during which I will earn salary and bonuses. My starting salary is $50,000 that I am earning currently and this is expected to grow by 10% per year. Also my cost of capital is 12% and my cost of education stands at $120,000.

Thus the present value of my costs = $120,000 and the present value of my future earnings in the form of salary will be computed using the formula: P/(r-g) * [1-((1+g)/(1+r))^n] where P = $50,000, r = 12%, g = 10% and n = 40 years. Thus present value of all my future earnings = 50,000/(0.12-0.10)*[1-((1+0.10)/(1+0.12))^40 = $1,284,020. Thus the lifetime NPV of my college degree is NPV of benefits – NPV of costs = $1,284,020 - $50,000 = $1,234,020.

(2 paragraphs)


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