Questions 1 and 2 pertain to the following situation. According to time.com, the

Question

Questions 1 and 2 pertain to the following situation. According to time.com, the average starting salary today (rounded to the nearer thousand) for a person with a bachelor's degree is $45, 000. According to work.chron.com, the average starting salary today (also rounded to the nearer thousand) for a person with a high school diploma is about $30, 000. You are trying to decide if you should cam your bachelor's degree as quickly as possible (in four years) or get a full-time job and cam your bachelor's degree taking courses in the evening or on-line over an eight year period. Use an interest rate of 4% in your calculations. On the one hand, you could go to school full-time and work part-time. At $10 per hour, twenty hours per week for fourty weeks and fourty hours per week for ten weeks, you can cam about $12, 000 per year. That will cover your living expenses. You forecast $12, 000 tuition and fees for your two years at a community college and $18, 000 tuition and fees for your final two years at a four-year college which you will need to borrow. After four years, you would enter the work force, but you will have a loan of $60, 000 to repay. You plan to repay that loan at $4, 500 per year, at an interest rate of 4%, you will need about twenty years to pay off the loan. Your cash flow diagram for this option looks like the following. Calculate the present value of this plan.

Explanation / Answer

Present value = 4500 x Cumulative PVF@4.5% from 5-24 periods

= 4500 x 10.908

= $49086

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