You are considering enrolling in a 3-year long program. You will continue your current employment. If you do the program you must pay two payments of $35,000; the first happens today, at the beginning of the program, and the second is due one year from today, at the beginning of the second year. Because of this advanced degree, you expect your annual earnings stream will increase; this increase will occur after you complete the three-year program. You plan on working for 30 years after you graduate. Remember that in capital budgeting, we assume that cash flows from the operations/activity happen at the end of the year.

To finance this program, you will withdraw money from your investment portfolio, which is currently earning an average of 7%. Thus, you have decided that any use of these funds should earn at least 7%.

What is the annual increase in earnings necessary to make this investment worthwhile? This annual increase in earnings can be treated as an annuity