Question

Dr Jenny Ling currently earns $110,000 per year. She is considering participating in the new biotech venture BIOQUANT Ltd. in Parkville. To proceed, she must resign from her current job with BIG ASSET MANAGEMENT Ltd. and commit to the new venture for three years. During that time, she expects to receive a salary of $60,000 per year. If the venture fails, she can return to her current line of work but expects that her salary will drop to $90,000. In either case, her earnings in alternative employment are expected to grow at a rate of 5 percent per year. Her remaining work life is 20 years. She believes it is appropriate to value future earnings using a discount rate of 15 percent. She also has $150,000 of equity in her house in Port Melbourne and will use the equity to secure a loan of that amount to invest in BIOQUANT. Finally, Jenny Ling has retirement savings invested in a market portfolio of $400,000 that she is unable to use in the new venture.

what is the present value of Jenny Ling's human capital?

Answer 1