Marian currently makes $40,000 a year as a librarian. She is considering a career change: For a current expenditure of $30,000, she can obtain her florist's license and become a flower arranger. If she makes that career change, her earnings will rise to $48,000 per year. Marian has five years left to work before retirement (you may safely assume that she gets paid once at the end of each year).
a. Calculate the net present value of Marian's investment in floriculture if interest rates are 10%.
b. Assume that in terms of job satisfaction, floriculture and librarianship are identical. Should Marian change careers?
c. Compare the present value of Marian's earnings as a librarian to the present value of Marian's earnings as a florist. Is the difference large enough to justify spending $30,000?
d. Does the method you used in part (a) give an identical answer to the method you used in part (c)? Explain.