Floyd is now working on a job that pays $8,000 per year. He is contemplating a 1 year automobile mechanics course that

Question

Floyd is now working on a job that pays $8,000 per year. He is contemplating a 1 year automobile mechanics course that entail costs of $1,000 for books and tuition. If Flyod takes the course he would not be able to work during the year of instruction. Floyd estimates that the course will increase his income to $13,000 in each of the 3 years following completion of the course. At the end of those 3 years, Floyd plans to retire to a hippy, infested commune in Nederland, Colorado. The current interest rate is 10 percent. A) What is the net present value of Floyd's possible course? B) Given your answer in (A) should Floyd enroll in the course? why or why not?

Help In Homework · Accepted Answer

A) The net present value of Floyd's possible course is $3,434.26 The formula for net present value is: where, CO is the cash outflow or the money going out. -The cash outflow consists of Floyd's lost salary of $8,000 and the cost of books and tuition fee worth $1,000. His total cash outflow is $9,000. CI is the cash inflow or the money coming in. - The cash inflow consists of the income increase worth $13,000 minus the Floyd's lost salary of $8,000. His total cash inflow is $5,000. i is the current rate of interest. n is the number of period. Here, n = 1 to indicate it as annually. y is the years remaining. Using our formula to solve the problem, Therefore, the net present value is $3,434.26 B) Floyd should enroll in this course. Based from our calculations, the net present value of the possible course generates a positive value. In other words, Floyd will earn more than the cost incurred from it.

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Floyd is now working on a job that pays $8,000 per year

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