Question

John is a talented artist who received an offer to go pro gymnast . He graduated from the business school of Talent University with a 4.0 GPA and scored 826 on his MCAT.

Having all the needed skills, John is considering a career in any of the following tracks. John collected information related to potential income and cost for his options. Since he is considering average income, John divided his professional career into 5 periods of earning

Occupation Period 0 Period 1 Period 2 Period 3 Period 4

Neurosurgeon -20 5 15 20 30

Accountant 4 6 10 12 14

Artist 3 3 3 3 3

Gymnast 25 10 0 0 0

Assume that John's discount factor d=0.85. Find net present value of each career what is the NPV of the most lucrative option

Answer 1

	Period 0	Period 1	Period 2	Period 3	Period 4	NPV
Neurosurgeon	20	5	15	20	30
Discount factor	1	0.85	0.723	0.615	0.523
PV	20	4.25	10.85	12.3	15.69	54.09
Accountant	4	6	10	12	14
Discount factor	1	0.85	0.723	0.615	0.523
PV	4	5.1	7.23	7.38	7.32	31.03
Artist	3	3	3	3	3
Discount factor	1	0.85	0.723	0.615	0.523
PV	3	2.55	2.17	1.85	1.57	11.14
Gymnast	25	10	0	0	0
Discount factor	1	0.85	0.723	0.615	0.523
PV	25	8.5	0	0	0	33.5

NPV of the most lucrative option = 54.09 (Neurosurgeon)