Carol has just finished high school in Fort McMurray and is considering a 4 years economics degree at U of C. She estimates that tuition, books, living accommodation (since she has to move to Calgary) will cost $18,000 a year. Her saving account is paying her 2 percent per annum.
Carol has been offered a job as an assistant office manager at a small oil and gas company. This job will pay her a salary of $55,000 per year for 4 years and then she expects to be promoted to manager. For the next 30 years she will earn a average gross salary of $95,000 as the manager.
If she pursues an economics career, Carol expects to make a gross salary of $125,000 per year for the next 30 years. She also anticpates that her person tax rate will be 25% as office manager (and assistant manager) and 28% as a economist.
a) Using the HCT to education, calculate the NPV and determine whether she would become a economist if the discount rate is 2%? (Assume all costs and benefits accrue at the end of each year and show all your work)
b) Would the internal rate of return to education be higher or lower thean the average saving rate for Carol? Explain
c) For this type of analysis, what problems would the Institutionalists say about Carols approach tp education and income?