It is January 1st, 2020, Joan just turned 24-years-old and recently finished her undergraduate degree. Since finishing, she has been working as a bookkeeper. She is paid on a semi-annual frequency (this assumption may be unrealistic but is made to keep things relatively simple). Her most recent paycheck, in December 2019, was for $20,000 and will grow at a real rate of 1.25% per semi-annum.

She also has no chance of promotion with her current level of education and is certain that she will retire on her 66^th birthday. She is considering enrolling in an MBA that requires her to stop working for 2 years (start date of September 1st, 2020) and to pay tuition of $19,000 semi-annually. The benefit of this (investment) is that if (when)she graduates, her employer will offer her a management position where her starting compensation would equal 2 times the salary she was earning at her previous position (i.e. 2 times the semi-annual salary she was earning the day she started her MBA). Moreover, wages for the management position grow at 2.5% semi-annually(real rate).

Part A: What is the Internal Rate of Return (IRR) from this “investment” in education? Please state very clearly, and briefly explain if necessary, any-and-all assumptions you must make to come up with an answer to this question. For example: “I assumed that she worked her old job until September 1st, 2020.”Any implicit assumptions that you make –that are not explained –will result in a loss of points.