Suppose you have just finished the final year of your undergraduate degree at university and are...
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Suppose you have just finished the final year of your undergraduate degree at university and are faced with the choice of either getting a job when you graduate or studying for a Masters degree, and you wish to understand the financial implications of each alternative. If you take the "get a job route you expect to start off with a salary of $50,000 per annum, paid as a lump sum at the end of each year. You expect that your salary will grow at 5% per annum until you retire in 40 years. If you study for a Masters degree, you will be paying $25,000 per annum in tuition fees for each of the three years you are studying. Tuition fees are payable as a lump sum at the beginning of each academic year. Upon graduation, you expect to start off with a salary of $90,000 per annum, paid as a lump sum at the end of each year. You expect that your salary will grow at 7% per annum until you retire in 37 years. Assuming a discount rate of 10% per annum. Part (a) (3 marks) What is the present value of the future earnings you will realise by going directly to work upon completion of your undergraduate degree? i. $626,240.61 ii. $838,216.50 iii. $844, iv. None of the above Text Effects Part (b) (3 marks) What is the present value of your tuition fees for the Masters degree? $55,723.56 i. ii. $62,171.30 iii. $86,503.12 iv. None of the above Part (c) (3 marks) What is the present value today of the future earnings you will realise if you study for a Masters degree? i. $1,121,452.22 ii. $1,381,533.21 iii. $1,597,637.51 iv. None of the above Suppose you have just finished the final year of your undergraduate degree at university and are faced with the choice of either getting a job when you graduate or studying for a Masters degree, and you wish to understand the financial implications of each alternative. If you take the "get a job route you expect to start off with a salary of $50,000 per annum, paid as a lump sum at the end of each year. You expect that your salary will grow at 5% per annum until you retire in 40 years. If you study for a Masters degree, you will be paying $25,000 per annum in tuition fees for each of the three years you are studying. Tuition fees are payable as a lump sum at the beginning of each academic year. Upon graduation, you expect to start off with a salary of $90,000 per annum, paid as a lump sum at the end of each year. You expect that your salary will grow at 7% per annum until you retire in 37 years. Assuming a discount rate of 10% per annum. Part (a) (3 marks) What is the present value of the future earnings you will realise by going directly to work upon completion of your undergraduate degree? i. $626,240.61 ii. $838,216.50 iii. $844, iv. None of the above Text Effects Part (b) (3 marks) What is the present value of your tuition fees for the Masters degree? $55,723.56 i. ii. $62,171.30 iii. $86,503.12 iv. None of the above Part (c) (3 marks) What is the present value today of the future earnings you will realise if you study for a Masters degree? i. $1,121,452.22 ii. $1,381,533.21 iii. $1,597,637.51 iv. None of the above
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SOLUTION Part a To calculate the present value of the future earnings from going directly to work upon completion of the undergraduate degree we need to discount the future earnings to their present v... View the full answer
Related Book For
Managerial Accounting
ISBN: 978-0078025518
2nd edition
Authors: Stacey Whitecotton, Robert Libby, Fred Phillips
Posted Date:
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