Jennifer has just finished high school and is deciding whether to start working or go to college.She has already been offered a job that pays $35,000 a year.Four years of college will cost $12,000 each year.She would earn an extra $20,000 each year after she graduates for the 45 years she plans on working until she retires.Assume that the interest rate is 8.5%.Given this information,what should Jennifer do?

Question

Quizplus · Accepted Answer

To determine Jennifer's best option, we need to compare the present value of her earnings for each decision.

If Jennifer takes the job, she will earn $35,000 per year for the next 45 years, for a total of $1,575,000. Using the present value formula with an interest rate of 8.5%, we find that the present value of these earnings is $361,369.

If Jennifer goes to college, she will have to pay $12,000 per year for four years, for a total cost of $48,000. However, after she graduates, she will earn an extra $20,000 per year for the next 45 years, for a total of $900,000. Using the present value formula, we find that the present value of her earnings after college is $345,497.

Comparing the present values, we see that Jennifer will have a higher present value of earnings if she goes to college. Therefore, the best choice for Jennifer is to go to college.

Jennifer Has Just Finished High School and Is Deciding Whether