Questions 1 and 2 pertain to the following situation Accordi

Questions 1 and 2 pertain to the following situation. According to time.com, the average starting salary today (rounded to the nearer thousand) for a person with a bachelor\'s degree is $45, 000. According to work.chron.com, the average starting salary today (also rounded to the nearer thousand) for a person with a high school diploma is about $30, 000. You are trying to decide if you should cam your bachelor\'s degree as quickly as possible (in four years) or get a full-time job and cam your bachelor\'s degree taking courses in the evening or on-line over an eight year period. Use an interest rate of 4% in your calculations. On the one hand, you could go to school full-time and work part-time. At $10 per hour, twenty hours per week for fourty weeks and fourty hours per week for ten weeks, you can cam about $12, 000 per year. That will cover your living expenses. You forecast $12, 000 tuition and fees for your two years at a community college and $18, 000 tuition and fees for your final two years at a four-year college which you will need to borrow. After four years, you would enter the work force, but you will have a loan of $60, 000 to repay. You plan to repay that loan at $4, 500 per year, at an interest rate of 4%, you will need about twenty years to pay off the loan. Your cash flow diagram for this option looks like the following. Calculate the present value of this plan.

Solution

Present value = 4500 x Cumulative PVF@4.5% from 5-24 periods

= 4500 x 10.908

= $49086