Student a due to the better grades that result from more

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Student A is a very studious, hard-working student.  Student B preferred other activities to studying during senior year.  Student A, due to the better grades that result from more studying, will get a better job out of undergrad, while Student B will only get a decent job after undergrad.  Using the following assumptions, back out what implicit value student B places on his/her free time (per hour) these days (assuming the school year is 32 weeks).  For simplicity, assume their job begins in Year 1, pays the full salary at the end of the year, and each works for 40 years.  Ignore taxes and living expenses.

Student

A

B

Hours of Study per week

40

20

Starting Salary

70,000

40,000

Salary Growth

6%

5%

Weeks in school year

32

32

Discount Rate

12%

15%

[Hint: Find the present value of each student's future earnings and divide by the number of hours student B is saving during senior year by not studying more (compared to Student A).]

Reference no: EM13616402

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