Calculate the present value of the costs- Microeconomics
Jane is trying to decide which of three career paths to pursue. The first one requires one year of training at a cost of $10,000. The second requires two years of training at a cost of $7,000 per year. The third requires four years of training at a cost of $4,000 per year. If she opts for career path one she can work for five years after training is completed earning an incremental wage rate of $2,000 in year 1, $3,000 in year 2, $3500 in year 3, $4,000 in years 4 and $5,000 in year 5. If she elects career path two she will earn an incremental $9,000 the first year after training is completed and $8,000 the second year after training is completed and $4,000 the third year after training is completed. She will only have incremental earnings for three years after training if she elects career path 2. If she opts for career path three she will have incremental earnings of $6,000 per year for each of the five years after training is completed. After this time she will have no incremental earnings.
a. Assuming the first year of training is not to be discounted. Calculate the present value of the costs and the present value of the benefits of each career path assuming an interest rate of 3% and then again at an interest rate of 10%. Which of the career paths should she pursue under each interest rate?
