Emma has 3 alternative education-work options for a 3-period time span. Option 1: She can start working immediately, earning $100,000 in period 1, $110,000 in period 2 (due to her higher productivity given her work experience) and $90,000 in period 3 (as her skills become obsolete). Option 2: She can spend $50,000 to attend university in period 1 and then earn $180,000 in periods 2 and 3, respectively. Option 3: She can receive a doctorate degree in period 2 after completing her university education in period 1. This option will cost her nothing when she is pursuing her post-graduate studies in the second period as her expenses will be covered by a research assistantship scheme. After receiving her doctorate degree, she will work at the university and earn $400,000 in period 3. The interest rate is 20% per period. Calculate the net present value (NPV) of Emma’s earnings for each option. Show all steps of calculations. Which option will Emma choose? Why?

ENGR.ECONOMIC ANALYSIS
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Chapter1: Making Economics Decisions
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Emma has 3 alternative education-work options for a 3-period time span.

Option 1:

She can start working immediately, earning $100,000 in period 1, $110,000 in

period 2 (due to her higher productivity given her work experience) and $90,000 in

period 3 (as her skills become obsolete).

Option 2:

She can spend $50,000 to attend university in period 1 and then earn $180,000 in

periods 2 and 3, respectively.

Option 3:

She can receive a doctorate degree in period 2 after completing her university education

in period 1. This option will cost her nothing when she is pursuing her post-graduate

studies in the second period as her expenses will be covered by a research assistantship

scheme. After receiving her doctorate degree, she will work at the university and earn

$400,000 in period 3.

The interest rate is 20% per period.

Calculate the net present value (NPV) of Emma’s earnings for each option. Show all

steps of calculations. Which option will Emma choose? Why?

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