Question: You are thinking about going to graduate school. It costs $3,000 a year for tuition and books. Room and board is $5,000 a year. If you complete four years of graduate school, your yearly earnings will be $60,000 as a professor and your salary will increase at a rate of 10% per annum. If you chose not to go to grad school, your yearly earnings will be $45,000 as a manager and your salary will increase at a rate of 5% per annum. The annual interest rate is 5%, and your working life is 20 years (note: you work only 16 years if you go to graduate school).

A. Calculate the present value of the costs of grad school assuming you keep your full time job as a manager while working on your grad degree. Show work.

B. Calculate the present value of the costs of grad school in case you have to quit your job and study full time. What should be included in your calculation of the opportunity costs of grad school and why?

C. Write down the detailed formulas you would use to calculate the net present values of your earnings in the two proposed occupations.

D. (BONUS part) Calculate the net PV in Excel or using a calculator. Which occupation should you choose to maximize wealth?

E. What other considerations, besides yearly earnings, might enter into your occupational choice?