An engineering student has just finished the freshman year and has received an offer of $20,000 per year in a full-time job. with prospects of salary increasing 3 % per year until retirement after 33 years. If employment is taken, the student will likely not finish his engineering degree. Tuition and other costs are $10,000 next year, increasing at 7% per year. A starting salary of $45.000 could be expected upon graduation from the fouryear program. Salary increases in the engineering job are estimated at 4% per year until retirement after 30 years. Required:
On the basis of economics alone, should the student take the job now or finish college? Analyze as two mutually exclusive alternatives and solve with present worth analysis. Interest rate is 7%.

Since the $860,886.33 which is the present worth of net salary if he finishes his engineering degree is greater than the $357,788.81 which is the present worth of net salary if he does NOT finish his engineering degree, the student should finish college.

Explanation:

This can be dermined based on the following 3 steps:

Step 1: Calculation of present worth of net salary if he does NOT finish his engineering degree

This can be calculated using the formula for calculating the present worth (PW) of a growing annuity as follows:

PWN = (P / (r - g)) * (1 - ((1 + g) / (1 + r))^n) (1)

Where;

PWN = present worth of net salary if he does NOT finish his engineering degree = ?

P = Annual salary = $20,000

r = interest rate per year = 7%, or 0.07

g = growth rate of salary = 3% or 0.03

n = number of years = 33

Substituting the values into equation (1), we have:

PWN = ($20,000 / (0.07 - 0.03)) * (1 - ((1 + 0.03) / (1 + 0.07))^33)

PWN = $357,788.81

Step 2: Calculation of present worth net salary if he finishes his engineering degree

Calculation of the present worth of tuition and other costs

This can be calculated using the formula for calculating the present worth (PW) of a growing annuity as follows:

PWT = (P / (r - g)) * (1 - ((1 + g) / (1 + r))^n) (2)

Where;

PWT = present worth tuition and other costs = ?

P = Tuition and other costs next year = $10,000

r = interest rate per year = 7%, or 0.07

g = growth rate of tuition and other costs = 7% or 0.07

n = number of years = Number of years for engineering degree - One year already spent = 4 - 1 = 3

Substituting the values into equation (2), we have:

PWT = (10,000 / (0.07 - 0.07)) * (1 - ((1 + 0.07) / (1 + 0.07))^3)

PWT = undefined or 0

Note: The PWT is undefined because r = g here. Therefore, it should not be considered in the further analysis.

Calculation of the present worth of salary after graduation

This can be calculated using the formula for calculating the present worth (PW) of a growing annuity as follows:

PWG = (P / (r - g)) * (1 - ((1 + g) / (1 + r))^n) (3)

Where;

PWG = present worth of salary after graduation = ?

P = Starting salary = $45,000

r = interest rate per year = 7%, or 0.07

g = growth rate of salary = 4% or 0.04

n = number of years = 30

Substituting the values into equation (3), we have:

PWG = ($45,000 / (0.07 - 0.04)) * (1 - ((1 + 0.04) / (1 + 0.07))^30)

PWG = $860,886.33

Step 3: Decision

Present worth of net salary if he does NOT finish his engineering degree = $357,788.81

Present worth of net salary if he finishes his engineering degree = present worth of salary after graduation = $860,886.33

Since the $860,886.33 which is the present worth of net salary if he finishes his engineering degree is greater than the $357,788.81 which is the present worth of net salary if he does NOT finish his engineering degree, the student should finish college.

the answer to this question would be shared investment

1   all nations face the problem of scarcity because there are limited resources and unlimited wants. nations do not have enough factors of production to produce everything that their population wants. entrepreneurial resources initiate businesses to make new goods and services; labor resources produce goods and services.

2 there are four factors of production: natural resources, labor resources, capital resources, and entrepreneurial resources. natural resources are raw materials from nature that are used to produce goods. trees, water, and grains are natural resources. some natural resources, such as wheat and cattle, are renewable

3 wants

things that you do not need to have in order to survive, but would like to have

needs

things that you must have in order to survive

goods

physical products

services

tasks that a business perform for customers

resources

items that people can use to make or obtain what they need or want

determine

to settle or decide by choice of alternatives or possiblities

4 i really dont know