Emma has 3 alternative education-work options for a 3-period time span. Option 1: She can start working immediately, earning $100,000 in period 1, $110,000 in period 2 (due to her higher productivity given her work experience) and $90,000 in period 3 (as her skills become obsolete). Option 2: She can spend $50,000 to attend university in period 1 and then earn $180,000 in periods 2 and 3, respectively. Option 3: She can receive a doctorate degree in period 2 after completing her university education in period 1. This option will cost her nothing when she is pursuing her post-graduate studies in the second period as her expenses will be covered by a research assistantship scheme. After receiving her doctorate degree, she will work at the university and earn $400,000 in period 3. The interest rate is 20% per period. Calculate the net present value (NPV) of Emma’s earnings for each option. Show all steps of calculations. Which option will Emma choose? Why?
Emma has 3 alternative education-work options for a 3-period time span.
Option 1:
She can start working immediately, earning $100,000 in period 1, $110,000 in
period 2 (due to her higher productivity given her work experience) and $90,000 in
period 3 (as her skills become obsolete).
Option 2:
She can spend $50,000 to attend university in period 1 and then earn $180,000 in
periods 2 and 3, respectively.
Option 3:
She can receive a doctorate degree in period 2 after completing her university education
in period 1. This option will cost her nothing when she is pursuing her post-graduate
studies in the second period as her expenses will be covered by a research assistantship
scheme. After receiving her doctorate degree, she will work at the university and earn
$400,000 in period 3.
The interest rate is 20% per period.
Calculate the
steps of calculations. Which option will Emma choose? Why?
Step by step
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