Dr. Joel is a doctor in a large metropolitan city in the United States. He earns

Question

Dr. Joel is a doctor in a large metropolitan city in the United States. He earns $100,000/year and plans on working three more years and then retiring. A remote, rural town in the state in which he resides is in desperate need of a doctor and offers Dr. Joel the job. If Dr. Joel moves, he will still only work for three years (thereby not adjusting his retirement plans). He would incur $15,000 in psychic costs if he moves due to the disutility he experiences from moving to such a remote location. Dr. Joel’s discount rate is 5%. What is the minimum annual salary that the remote town must pay Dr. Joel per year for him to accept its job offer?

Explanation / Answer

PV of the Net Income in City = 100,000 + 100,000/1.05 + 100,000/(1.05)^2 = 286,147.181

Let Salary in Town is X

PV of the Net Income in Town = X + X/1.05 + X/(1.05)^2 - 15,000

the minimum annual salary that the remote town must pay Dr. Joel per year for him to accept its job offer should such that her lifettime earnings in two cases be equal

So,= X + X/1.05 + X/(1.05)^2 - 15,000 = 286,147.181

So X = 105317.9276

Related Questions

Navigate

• Browse (All)
• Browse D
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.