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Mike is now working in a company that pays him $10,000 per year. He is contemplating a one year...

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Mike is now working in a company that pays him $10,000 per year. He is contemplating a one year automobile mechanics course that costs $2,000 for books and tuition. Mike estimates that the course will increase his income to $13,000 in each of the four years following the completion of the course. At the end of those four years flyod plans to retire to become a backpacker and travel the world. the current interest rate is 10 percent.

Is it economically rational for mike to enrol in the course?

Present Worth

The Present Worth of an investment is the sum of the present values of the benefits minus the present values of the cost. The calculations are done at the minimum acceptable rate of return (MARR) set by the investor. If present worth is positive the investment meets the MARR.

Answer and Explanation: 1

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It is economically rational for Mike to enroll in the course, because the Present Worth of the course is $39,208.25

First calculate the present value...

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How to Calculate Present Value of an Investment: Formula & Examples

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Chapter 24 / Lesson 15
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Calculating the present value of an investment tells how much money needs to be saved now in order to reach a desired, future amount. Explore the definition of and formula for the present value of an investment, and see examples.


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