Mike currently earns $20,000 as an unskilled labourer. Presume that by taking courses full-time at a community college for one year, Mike can earn his associate’s degree and qualify for a more skilled job paying $23,000 that is guaranteed to last for ten years (after which Mike would retire). Suppose the cost of tuition and books at the community college for one year is $2,000 and that the current interest rate is six percent. Is this a good investment?
What is the discounted present value of the benefit of the additional education (e.g., from Mike earning his associate’s degree)?
Which is greater, the value of the costs or the value of the benefits?
What is the discounted present value of the cost of the additional education?
If Mike were older, would he be more or less likely to obtain the additional education?