Question

NA4320 Investment Management You deposit S55,000 from your parents into your saving account and until you retire. you choose not to go to a college, that is, the option (b), then your career path I be as folows The job at Dunder Mifflin Company, Ine starts today and the company for 45 years. You will get your first paycheck in a year after you w 32 You will receive 45 annual paychecks in total. re are additional assumptions you should make since this is a real world pro The firms will persist forever and your employment is guaranteed until Your decision on the college education is irreversible and you are stu are one of the coolest senior students of Houston Awesome High School. One day vo very important mails: (a) an acceptance letter from Bauer College of Business offer from Dunder Mifflin Company, Inc. You are not sure which career path you To quantify the values of two potential career paths, you assume followings career path until your retire. this is a decision on y the followings sset Human Capital') that generates cash flows in the future. The valu t depends on which career path you choose. Therefore, this is an investme nts will give you $55,000 from a college fund today whichever career path directly goes to your saving account and sits there. I living cost and taxes are always zero. answer the following questions. Drawing a time line with cash-f erstand the complicated future cash-flows. If you are confused or not s Il retire in 45 years from now rate of your saving account is 2% per year, compounded annually. You will e tha our saving to go to a college, which is the option (a), then your career path and cash-flows wers, use the Excel spreadsheet "PSI_To College or Not.xlsx" culat al answer saving is perfectly protected by the government. The discount rate is also 2% per year, all at once from your saving account when you retire. Assume te you need to change inputs in the gray box properly. However, I hop using formulas (PV, FV, and Annuity) you learned from the cl ion is correct by brute force (using the lengthy general present value anded annually ws. ) Compute "the (present) value when you start the job" of 41 annual pa esome Investments when you choose the career path (a) going to Bau esent value can be defined at any date, not just today. Imagine you take ool starts today l cost of getting a degree is $55,000 and needs to be paid in full today ed full four years to get a BBA degree. work at Houston Awesome Investments after graduation, starting in 4 years the future, 4 years from now, and compute the present value there. Awesome Investments pays 568.000 year for 41 years. You will get your first mula for an annuity because the timing of the first cash flow is consiste k in a year after you work there for a year. You will receive 41 annual paychecks $1,830,365.28 1,850,365.28 $1,870,365.28 S1,890,365.28 $1,910,365.28

Answer 1

A.present value of paychecks when start the job

= Paycheck amount*PVAF(2%, 41 years)

= 68,000*27.799

=$1,890,365.28

I.e. 4

B.Present value of cash flows going to college

= 1,890,365.28*PVF(2℅,4 YEARS)

= $1,746,405.32

I.e. 2

3. Present value = 55,000 + 39000*PVAF(2℅, 45 YEARS)

= 1,205,116.24

I.e. 1

4. Going to college of more valuable by 1,746,405.32-1,205,116.24

=$541,289.08

I.e. 5

5.future value of single cash flow = 1,746,405.32*(1.02)^45

=$4,257,481.55

I.e. 5

6.not going to college

= 1,205,116.24*(1.02)^45

=$2,937,897.69

I.e. 2