You have just finished your undergraduate degree and you have two career options: Option 1: Accepting a job offer with the starting salary of $75,000 per year (paid at the end of the year) and an annual raise of 2% pa (guaranteed). You will work in this company for 40 years. Option 2: Choosing a graduate program which will cost you $28,000 per year for the next two years (paid at the beginning of each year). Following the graduate school, you can get a job that offers the initial salary of $85,000 (paid at the end of the Year 3) with an annual raise of 3% pa (guaranteed). You will work in this company for 38 years. a. If you use the discount rate of 10% pa, which option is more lucrative for you? b.At what discount rate will you be indifferent between these two career options? (Hint: You need to use the incremental cash flows to answer this question) c. If option 2 (i.e., work after grad school) comes with a signing bonus (paid at the beginning of Year 3), at what signing bonus will you be indifferent?
You have just finished your undergraduate degree and you have two career options: Option 1: Accepting a job offer with the starting salary of $75,000 per year (paid at the end of the year) and an annual raise of 2% pa (guaranteed). You will work in this company for 40 years. Option 2: Choosing a graduate program which will cost you $28,000 per year for the next two years (paid at the beginning of each year). Following the graduate school, you can get a job that offers the initial salary of $85,000 (paid at the end of the Year 3) with an annual raise of 3% pa (guaranteed). You will work in this company for 38 years. a. If you use the discount rate of 10% pa, which option is more lucrative for you? b.At what discount rate will you be indifferent between these two career options? (Hint: You need to use the incremental cash flows to answer this question) c. If option 2 (i.e., work after grad school) comes with a signing bonus (paid at the beginning of Year 3), at what signing bonus will you be indifferent?
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