Suppose we have a two period model Frank can either go to sc

Suppose we have a two period model. Frank can either go to school (1 period) and work in the next 2 periods 2nd and 3rd period), or choose not to go to school, and work in all three periods. If he goes to school he will pay $5,000 in period 1 and earn $50,000 in period 2 and period 3. If he doesn\'t go to school he will make $30,000 in all three periods. If the discount factor is 1/1.05, what is the present discounted value of going to school?

Solution

Present discounted value of going school = -5000/(1.05)+50000/(1.05)+50000/(1.05)

= -5000*0.9524+50000*0.9524+50000*0.9524 = $90478