Question

You conduct some research and determine that you would earn ZMW 100 000 (in real terms) per year for the ten years after graduation by doing the 3-year degree over and above what your earnings would be if you did not enroll in the course. You are required to pay ZMW 450 000 in tuition fees for the entire course. Discount rate of 10% .Given the above information, should you enroll in the course? [Hint: Take extra care in the determination of the time horizon(s)

Answer 1

Per year earning from graduation = 100,000

Discount Rate = 10%

Tuition fee for whole course = 450,000

Present value can be calculated as [Cash Flow / (1 + Discount Rate)^Year]

As you will start getting salary from 4th year, present value should start from year 4.

Present value calculated for year	Cash Flow	Present Value
4	100000	68301.35
5	100000	62092.13
6	100000	56447.39
7	100000	51315.81
8	100000	46650.74
9	100000	42409.76
10	100000	38554.33
11	100000	35049.39
12	100000	31863.08
13	100000	28966.44
		461,650.4

Present value of annual income is $461,650.4 while spending is 450,000. Thus you should enroll in the course.