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Please help me with this question about the Internal Rate of Return (IRR), highly appreciate it!! Steve just graduated from high school and is considering
Please help me with this question about the Internal Rate of Return (IRR), highly appreciate it!!
Steve just graduated from high school and is considering studying in university. His results allow him to get into his dream engineering degree in MIT, but he can only cover only part of the costs from his savings, so he is considering to get a loan to cover the rest of the costs. The annual tuition fees in MIT are $60,000 and increase by 2% each year. His savings are $60,000 and are invested in a fund yielding 5% p.a. on average. He is planning to pay 20% of the annual tuition fees from his savings account each year. The degree lasts for 5 years. Steve thinks he has decent chances of getting a part-time job in his field during his final years, and after graduation, he has good chances of scoring a full-time engineering job. Based on historical figures he has put together a table with his expected expenses, salary and probability of getting a job for 10 years after graduation: Year Costs Salary Probability of getting a job 1 20% of annual tuition from savings + 80% loan 20% of annual tuition from savings + 80% loan 20% of annual tuition from savings + 80% loan 20% of annual tuition from savings + 80% loan $10,000 50% 20% of annual tuition from savings + 80% loan $15,000 60% $45,000 70% 7 - $60,000 85% $75,000 95% $100,000 100% $120,000 100% Calculate the IRR of his study and give your answer as a percentage correct to 2 decimal placesStep by Step Solution
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