Josie has an undergraduate degree in economics and has been working as a utility rate analyst at the local electricity utility.If she continues on her present career path,the present value of her lifetime earnings is $250,000.If she takes two years off and gets an MA degree in economics,the present value of her lifetime earnings is $275,000.The annual cost of an MA degree in economics is $15,000 and the interest rate is 8%.Assume that school fees are paid at the beginning of the year.
-Refer to the information above.The discounted (present value)benefit of Josie's benefit of getting a graduate degree is

Question

Quizplus · Accepted Answer

The discounted benefit of getting a graduate degree is the difference between the present values of her lifetime earnings with and without the degree, minus the cost of the degree. Therefore, the discounted benefit is ($275,000 - $250,000) - $15,000 = $10,000 - $15,000 = -$5,000. However, since we are asked for the benefit, we take the absolute value of -$5,000, which is $5,000. Therefore, the discounted benefit of getting a graduate degree is $5,000.

Josie Has an Undergraduate Degree in Economics and Has Been