It is Jan 1st, 2023, John just turned 18 years old and has recently been admitted to two programs: B.S. in chemical engineering and B.A. in business administration. Both programs take 4 years to complete. John is also considering working with his uncle in home renovation. Upon graduation from either of the university programs, he’ll start earning $70,000 per year paid at the end of the year. If he pursues the engineering degree, he will have to pay $20,000 at the beginning of each year as tuition until graduation (4 installments), and his salary would increase by 2% per year until retirement. The tuition of the business program is slightly higher at $25,000 each year (paid at the beginning of the year). However, if he graduates with B.A. in business, his salary doesn’t grow for 5 years, but starting from the sixth year, his salary grows by 4% per year till retirement as he plans to assume a managerial position after 5 years. Finally, if he works with his uncle, his starting salary is $40,000 unchanged until retirement. Assuming the retirement age of 65 and a valuation rate of 6% calculate the PV of each career choice and give him financial advice about the best career path.
Question 3: It is Jan 1st, 2023, John just turned 18 years old and has recently been admitted to two programs: B.S. in chemical engineering and B.A. in business administration. Both programs take 4 years to complete. John is also considering working with his uncle in home renovation. Upon graduation from either of the university programs, he’ll start earning $70,000 per year paid at the end of the year. If he pursues the engineering degree, he will have to pay $20,000 at the beginning of each year as tuition until graduation (4 installments), and his salary would increase by 2% per year until retirement. The tuition of the business program is slightly higher at $25,000 each year (paid at the beginning of the year). However, if he graduates with B.A. in business, his salary doesn’t grow for 5 years, but starting from the sixth year, his salary grows by 4% per year till retirement as he plans to assume a managerial position after 5 years. Finally, if he works with his uncle, his starting salary is $40,000 unchanged until retirement. Assuming the retirement age of 65 and a valuation rate of 6% calculate the PV of each career choice and give him financial advice about the best career path.
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