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 MS degree in economics,the present value of her lifetime earnings is $275,000.The annual cost of an MS degree in economics is $15,000 and the interest rate is 8%.
The discounted (present value)benefit of Josie's benefits to getting a graduate degree is _______.

Question

Quizplus · Accepted Answer

We need to calculate the net benefit (the difference of the present value of earning with a graduate degree minus the present value of earning without a graduate degree).

The present value of Josie's lifetime earnings with a graduate degree is $275,000, which includes the cost of the degree of $15,000.
The present value of her lifetime earnings without a graduate degree is $250,000.

Therefore, the net benefit of getting an MS degree is:

$275,000 - ($250,000 + $15,000) = $10,000

So the discounted (present value) benefit of Josie's benefits to getting a graduate degree is $10,000, which is answer choice C.

Josie Has an Undergraduate Degree in Economics and Has Been