Matt is trying to decide whether to go to college. If he starts work right out of high school, he expects to earn $50,000 for each of the next 40 years. Alternatively, he could spend four years in college, during which time he spends $20,000 annually; after graduation he expects to earn $70,000 for each of the next 36 years (note, he retires at the same age under both scenarios).
a. Find the present discounted value for each option. (Treat each year's costs or income as coming at the beginning of the year)
b. When will the present value of the cost/income stream from going to college exceed that associated with starting work immediately? (write this expression in terms of the discount factor)