nment Part 1 of 3 O Points 0 of 1 Comprehensive Problem
Last updated: 6/27/2023
nment Part 1 of 3 O Points 0 of 1 Comprehensive Problem Suppose that you are in the fall of your senior year and are faced with the choice of either getting a job when you graduate or going to law school Of course your choice is not purely financial However to make an informed decision you would like to know the financial implications of the two alternatives Let s assume that your alternatives are as follows If you take the get a job route you expect to start off with a salary of 35 000 per year There is no way to predict what will happen in the future your best guess is that your salary will grow at 4 percent per year until you retire in 43 years As a law student you will be paying 20 000 per year tuition for each of the 3 years you are in graduate school However you can then expect a job with a starting salary of 70 000 per year Moreover you expect your salary to grow by 9 percent per year until you retire 37 years later Clearly your total expected lifetime salary will be higher if you become a lawyer However the additional future salary is not free You will be paying 20 000 in tuition at the beginning of each of the 3 years of law school In addition you will be giving up a little more than 109 000 in lost income over the three years of law school 35 000 the first year 36 400 the second year and 37 856 the third year a To start your analysis of whether to go to law school calculate the present value of the future earnings that you will realize by going directly to work assume a discount rate of 10 percent b What is the present value today of your future earnings if you decide to attend law school assuming a discount rate of 10 percent Remember that you will be in law school for 3 years before you start to work as a lawyer Hint assume that you are paid at the end of each year so that your first salary payment if you decide to go to law school occurs 4 years from now c If you pay your law school tuition at the beginning of each year what is the present value of your tuition assuming a discount rate of 10 percent a What is the present value of the future earnings that you will realize by going directly to work assuming a discount rate of 10 percent Round to the nearest cent