Question

Two people quit work and begin college at the same time. Their salary and education information is given in the table below.

Salary prior to school
Years attending college
Total cost of college
Salary upon graduating
Person A
$18,000
3
$45000
$33,000
Person B
$27,000
4
$30,000
$37,000

Choose the true statement.
a.
Person A recovers their investment in a shorter amount of time.
b.
Person B recovers their investment in a shorter amount of time.
c.
They recover their investments in the same amount of time.
d.
There is too little information to compare the time to recover their investments

Answer 1

a. Person A recovers their investment in a shorter amount of time.

Workings:
- Person A: lost earnings = 3 × $18,000 = $54,000. Total investment = $54,000 + $45,000 = $99,000. Annual gain after graduating = $33,000 − $18,000 = $15,000. Payback = $99,000 / $15,000 = 6.6 years.
- Person B: lost earnings = 4 × $27,000 = $108,000. Total investment = $108,000 + $30,000 = $138,000. Annual gain after graduating = $37,000 − $27,000 = $10,000. Payback = $138,000 / $10,000 = 13.8 years.