Suppose you get your master’s degree in civil engineering and have the three following career options upon graduation: you can work for a governmental agency, you can work for an established firm, or you can work for a startup company. If you work for the governmental agency, you will have a starting salary of $60,000 with guaranteed annual salary increases of 3% per year. If you work for the established firm, your starting salary will be $65,000 with 0 to 5% annual salary increases, distributed uniformly. If you work for the startup firm, you will have a starting salary of $55,000 with annual salary increases of -6% (i.e., salary decreases) to +14%, distributed uniformly. You plan on having a 30-year career and value money at 5%.
1. Conduct sensitivity testing/risk analysis to run 30 trials with randomly drawn salary increases or decreases across each year, for each alternative. This means that your salary may go up one year, but down the next. Record the NPV for each trial.
2. From your samples, determine the average, min, max and standard deviation of each alternative.
3. Use a scatter plot to show the sampled salary NPVs. Plot salary NPV along the y-axis and observation # along the x-axis. Plot all three series in the same chart, and be sure to label each series and label the chart axes.
4. Based on potential salary alone, which alternative would you pick, and why?