Question

Frank and Lynn are co-workers getting paid the same salary. They both decide to quit their jobs and start going to school on the same day. Frank gets a degree after just 18 months and spends $6,500 dollars on his education. Lynn only spends $3,500, but it takes her 2 years to get her degree. Assuming that they each will make $6,000 more per year after graduating, which of the following is true?
a.
Frank will recover his investment at an earlier date than Lynn.
b.
Lynn will recover her investment at an earlier date than Frank.
c.
Frank and Lynn will recover their investments on the same date.
d.
There is not enough information given to know who will recover their investment first.

Answer 1

c. They recover on the same date.

Explanation: Frank recovers in 1.5 + 6500/6000 = 1.5 + 1.0833 = 2.5833 years from the start. Lynn recovers in 2 + 3500/6000 = 2 + 0.5833 = 2.5833 years. Equivalently, Frank pays $3,000 more but graduates 6 months earlier, and 6 months of the $6,000/year increase is $3,000, so their break-even dates coincide.