Question
Question #3: It is January 1st, 2020, you just turned 26-years-old. You are a high-school (only) graduate working only 40 hours per week -- playing
Question #3:
It is January 1st, 2020, you just turned 26-years-old. You are a high-school
(only) graduate working only 40 hours per week -- playing video games for the remainder
of the week -- and earning $20 per hour. Your wage is paid annually at the end of each
year (assume 52 weeks in each year). It is a relatively safe and secure job (immune to
viruses) and you plan to work at this job for the next 40 years of your life, after which you
will retire at the end of age 65; obviously to play video games for the rest of your life. Also,
assume that your salary (i.e. minimum wage) increases by 3% wage inflation, fixed until
your retirement. Notice that it is regular (not delayed) growth. For this question, ignore
income taxes, CPP, EI, and vacation entitlements. (Yes, totally unrealistic, but we must
start somewhere.)
Part A: You are considering enrolling in a full-time program of study (BA degree, college
diploma, extended technical certificate, etc.) that will require you to stop working for 4 fulltime years and pay tuition of $20,000 per year for each of those 4 years (at the end of
each year). Right after graduation you come back to your previous job. The benefit of this
big investment in your human capital is that when you graduate at the end of age 29, your
wage growth would be doubled (i.e., 6%) relative to what it would have been. Notice that
your starting wage after graduation should be adjusted by the inflation during your
education. What is the Internal Rate of Return (IRR) from this investment in your human
capital? Note that I would like to see (only) two digits in your answer, since anything
beyond that is meaningless given all the assumptions you will have to make. Please state
very clearly any-and-all further assumptions you are making in answering this question.
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