What are the present values of the income streams

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A student's senior year in college will cost $80,000 in lost earnings and direct expenses. Then, for the first two years after graduation the student will earn $100,000 and $200,000. Alternatively, the individual can earn $50,000 for what would have been senior year, $60,000 in the next year, and $100,000 in the next year. Let us assume that this is the end of the individual's working life. Assuming that the market rate of interest is 100 percent (discount rate is 100 percent), and all costs and earnings occur at the beginning of the period. What are the present values of the income streams if the student takes or does not take his or her senior year? Recalling that "sunk costs are sunk", what does our economic model predict this student will do?

Reference no: EM13219841

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