The following information will assist you in answering questions 1a through 1d.

Suppose Jessica, a 29 year old Utah native, chooses to return to college to earn a masters degree in economics under the belief that she can earn $25,000 more per year with the degree than she is earning now ($40,000 per year). Jessica is realistic about how she values opportunities and resources and has a personal discount rate of 4%. Jessica plans to take a Graduate Prep course up front at a cost of $5,000. The cost of getting a masters in economics is approximately $45,000 ($15,000 annually for each of three years) and most people can earn the degree while still employed. Jessica is very competitive and wants to earn straight As and write a killer thesis so she has decided that she will cut back her hours at work by 40% - her pay will also reduce by the same percentage so shes also committed to reducing her annual expenses by $5,000. She also knows that upon completion of college it will cost her more to live than it does now and she expects her expenses to increase by $2,500 annually. Jessica will pay for her schooling at the beginning of each year and wants to access the value of the experience ten years after she finishes school. Were not taking into account any inflation in this Case for simplicitys sake.

1a. What is the value of r in this scenario?

1b. What is the maximum value of t in this scenario?

1c. What is the value of B₄ for Jessicas investment consideration?

1d. Assuming you choose to endogenize the costs of Jessicas plans in a present value equation, what is value of PV? Show your work in detail.

2. (multiple choice) Would you recommend Jessica undertake this investment in her human capital?

a. Indifferent, PV=0

b. Yes, PV > 0

c. No , PV

d. Theres no way to tell given the information provided