Question

gdaniel is working in a job that pays $18,000 per year. He is considering a one-year automobile mechanics course that costs $1,000 for books and tuition. He would stop working for a year while he attends this course. Daniel estimates that this course will increase his income to $23,000 in each of the three years following completion of the course. At the end of those three years, Daniel plans to retire to a commune in Tucson, AZ. The current interest rate is 10 percent. Is it economically rational for Daniel to enroll in the course? Explain and justify your answer.

Answer 1

Answer:

It is not economically rational for Daniel to enroll in the course

Explanation:

Increase in income = $23,000 - $18,000 = $5,000

i = 10% = 0.1

NPV = -(18,000 + 1,000) + 5,000/(1.1)^1 + 5,000/(1.1)^2 + 5,000/(1.1)^3

NPV = -17,000 + (4545.45 + 4132.22 + 3756.74)

NPV = -17,000 + 12,434.41

NPV = -4,565.59

Conclusion: Since NPV is Negative. Therefore, it is not economically rational. So the answer is NO.