Gabrielle Munoz, a second-year business student at the University of Iowa, will graduate in two years with an accounting major and a music minor. Gabrielle is trying to decide where to work the summer. She has two choices: work full-time for a bottling plant or work part-time in the accounting department of a meat-packing plant. She probably will work at the same place next summer as well. She is able to work twelve weeks during the summer.

The bottling plant would pay Gabrielle $380 per week this year and 7% more next summer. At the meat-packing plant, she would work 20 hours per week at $8.75 per hour. By working only part-time, she could take two accounting classes this summer. Tuition is $225 per hour for each of the four-hour courses. Gabrielle believes that the experience she gains this summer will qualify her for a full-time position accounting position with the meat-packing plant next summer. That position will pay $550 per week.

Gabrielle sees two additional benefits of working part-time this summer. First she could reduce her studying workload during the fall and spring semesters by one course each term. Second she would have time to work as an office assitant in the university's accounting department office during the fifteen-week fall term. She would be paid $50 per week(for 5 hours of work).

1. Suppose Gabrielle ignores the time value of money in decisions that cover this short of a time period. Suppose also that her sole goal is to make as much money as possible between now and the end of next summer. What should she do? What non-quantitative factors might Gabrielle consider? What would you do if you were faced with these alternatives?

2. Now, suppose Gabrielle considers the time value of money for all cash flows that she expects to receive one year or more in the future. Which alternative does this consideration favor? Why?