Reference no: EM131379902
Peter has just graduated from high school. He will live for three more periods, and he is considering three alternative education-work options.
Option 1: He can start working right away, earning $100,000 in period 1, $110,000 in period 2 (as his work experience leads to higher productivity), and $90,000 in period 3 ( as his skills become obsolete and physical abilities deteriorate).
Option 2: He can also go to college in period 1, spending $10,000 in that period, and then earn $150,000 in period 2 and 3.
Option 3: He can get a doctorate degree after completing his college education. For this option, he has to complete college education in period 1, which costs him $10,000. And it will cost him nothing in period 2 when he is attending graduate school (his expenses on tuition and books will be covered by a research assistantship). After getting his doctorate, he will become a professor in a business school and earn $300,000 in period 3. The rate of discount is 20 percent.
What should Peter do? Provide your arguments and calculation in details.
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