The bottling plant will pay Hunter $380 per week this year and 7% more next summer. At the meat-packing plant, he could work 20 hours per week at $8.75 per hour. Hunter believes that the experience he gains this summer will qualify him for a full-time accounting position with the meat-packing plant next summer. That position will pay $550 per week.
Hunter sees two additional benefits of working part-time this summer. By working only part-time, he could take tow accounting courses this summer(tuition is $225 per hour for each of the four-hour courses) and reduce his studying workload during the Fall and Springs semesters. Second, he would have the time to work as a grader in the university’s accounting department during the 15 week fall term and make additional income. Grading pay $50 per week.
Requirements:
Suppose that Hunter ignores that time value of money in decisions that cover this short-time period. Suppose also that his sole goal is to make as much money as possible between now and the end of next summer. What should he do? What nonquantitative factors might Hunter consider? What would you do if you were faced with these alternatives?
Now suppose that Hunter considers the time value of money for all cash flow that he expects to receive one year or more in the future. Which alternative does this consideration favor? Why?