David, who works as a financial analyst, has a bachelor's degree in economics and is thinking of going back to school to get an MBA. However, he is concerned about whether it would be a good investment. Suppose David's potential MBA program costs $40,000 per year. Suppose (for simplicity) the MBA program only takes 1 year, but during that time David would not be able to work. He currently earns $70,000 per year, but with an MBA he reasonably expects to earn $85,000 per year. Assume his discount rate is 4 percent and that the current year (in which he may spend his first year in school) is not discounted. David is currently 45 years old and plans to retire at age 65 (so he will work either 19 or 20 more years, depending on his MBA decision). Recall from class, a useful formula: T Σ B B 1 (1+r) (1 +r)". t=1 a) Calculate David's marginal cost of going back to school. b) Calculate the present value of David's marginal benefit of going back to school. c) Assuming David enjoys both school and work equally (i.e., there are no efforts costs for education), should he go back to school for his MBA?

David, who works as a financial analyst, has a bachelor's degree in economics and is thinking of going back to school to get an MBA. However, he is concerned about whether it would be a good investment. Suppose David's potential MBA program costs $40,000 per year. Suppose (for simplicity) the MBA program only takes 1 year, but during that time David would not be able to work. He currently earns $70,000 per year, but with an MBA he reasonably expects to earn $85,000 per year. Assume his discount rate is 4 percent and that the current year (in which he may spend his first year in school) is not discounted. David is currently 45 years old and plans to retire at age 65 (so he will work either 19 or 20 more years, depending on his MBA decision). Recall from class, a useful formula: T Σ B B 1 (1+r) (1 +r)". t=1 a) Calculate David's marginal cost of going back to school. b) Calculate the present value of David's marginal benefit of going back to school. c) Assuming David enjoys both school and work equally (i.e., there are no efforts costs for education), should he go back to school for his MBA?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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