Question

1. Excel) Consider Joel, a 26-year-old San Diegan who has just graduated from UCSD with a M.A. in Engineering. He has received two job offers, one in San Diego that pays him $120,000/year and another in Manhattan that will pay him $130,000/year. He is planning on working in the position, regardless of the location, until he finishes his 20^th year of work. Due to the higher cost of living, his added monetary costs in Manhattan will be $25,000 each year for the first 5 years only. He can borrow/save at a rate of 6%. Using the information provided and assuming all costs and benefits are incurred/accrued at the end of each year determine the following:

1. Calculate the net present value of his migration.

      

2. Calculate the internal rate of return of his migration                                                        (state as percent and round answer to tenth place)

3. Based on the NPV and IRR, should he migrate? Why?

Answer 1

() Net peesent value San Diego'r Annua lalary 120/000tlyear Present valve of Annua cashflows 120000x PvAF (6,30) 20000x 11-u6 keRarer Vatue Sao pea 135,200 Manhatten Ralany 130/0001year a) Annual for Syears 500000 0a Added cst Prsesont valve af Annuai cash Flows= 120000 xPuAF (61.20) 120/000 Xit.y6 Sep- Stef-2 pre Sent valve of Added cosk= a soo0x PVAE () tos 2101 Net pesentevatee aap Pv. of cash Inflows 4 g9800 0S310 Pv of Added Costs- Nerpregetwatere1284,u10 Net Psesant value 13/84,490 fsom manhatten- Cash Flows 1315,200 cash Hows From San piego Ner presant Value 9290-

Intenau Rate of Return Dis counting manhatten cashflows @. P.a 130,000 x PVAF L70) 130/000 x 1o.So4o 13,65so Discounting added co a 1.P.a asooo x PAF l31.sy) s000x u-100 t02,50s conflows Net 1365 520- 102505 12163 015 Ceaesep.eD TRR 9290 6 + 1 126301s 1384490 9290 6+ 121 495 6 0765.1 IRR oel hould migrate because These fore, and TRR alto higher than Coir of NPvis positive capital