Cost-Benefit analysis question.

[-King-]

I have a feeling that this question should be easy, but I can't get it. I'm thinking that the benefits is supposed to outweigh the cost, but I keep getting the opposite. Any help?

[alnorth]

Originally Posted by -King-

So all in all do I calculate it for her whole career, or calculate it for 3 years?

The best way is to evaluate both choices. There is not an easy intuitive way to say cost = x and benefit = y, I'd do peace corps person earned x in his life, and corporate person earned y in his life.

[-King-]

Originally Posted by alnorth

The best way is to evaluate both choices. There is not an easy intuitive way to say cost = x and benefit = y, I'd do peace corps person earned x in his life, and corporate person earned y in his life.

Yeah, I think thats the best route, but it doesn't say when the corporate person retires. For the peace corps person, it's 30 years.

[jbwm89]

Originally Posted by -King-

So all in all do I calculate it for her whole career, or calculate it for 3 years?

Imo you should calculate the lifetime. Pm me if you ever need any advice on classes, teachers etc. I'm graduating in may so I've pretty much had moat of the classes your looking at.

[Rain Man]

Originally Posted by -King-

So all in all do I calculate it for her whole career, or calculate it for 3 years?

Frankly, I think the best way is not to add up the whole career because it's a pain in the neck. You're just looking at differentials, so you should assume that the corporate drone job is zero and freeze it at that, then calculate the relative costs and benefits of the Peace Corps gig and see if it adds to more than zero or less than zero. That's the way they worded the problem.

[Saul Good]

Originally Posted by -King-

So all in all do I calculate it for her whole career, or calculate it for 3 years?

30 years worth. I don't see anything confusing about that. You will always be 3 years more experienced.

[Saul Good]

Originally Posted by Rain Man

Frankly, I think the best way is not to add up the whole career because it's a pain in the neck. You're just looking at differentials, so you should assume that the corporate drone job is zero and freeze it at that, then calculate the relative costs and benefits of the Peace Corps gig and see if it adds to more than zero or less than zero. That's the way they worded the problem.

This

(50k-15k-15k-10k)*3= 30k salary less expenses less annual enjoyment.
30k+8k-50k= -12k representing 30k from above plus physical less french.
-12k + (1k*30) = 18k net benefit from going corporate (not factoring in the fact that the extra thousand earned per year should be discounted to determine a present value).

[Rain Man]

Originally Posted by Saul Good

This

(50k-15k-15k-10k)*3= 30k salary less expenses less annual enjoyment.
30k+8k-50k= -12k representing 30k from above plus physical less french.
-12k + (1k*30) = 18k net benefit from going corporate (not factoring in the fact that the extra thousand earned per year should be discounted to determine a present value).

Yep, that's what I came up with as well.

I didn't do the net present value thing, but you're right that it's the proper way to do it. Not sure if that's part of the class or not.

[alnorth]

Originally Posted by -King-

Yeah, I think thats the best route, but it doesn't say when the corporate person retires. For the peace corps person, it's 30 years.

The non-peace corps person works for 33 years. The problem tells you the year they retired, whether they join or not.

If the non-peace corps person worked for only 30 years, then the cost becomes small and the peace corps probably wins by a mile. (in that situation, the 1000 per year you are giving up would be immediately made up by your 3-year peace corps salary alone. The enjoyment and french would put you way over the top. The reason why corporate wins is because of the 3 years of net corporate salary you lose)

[alnorth]

Originally Posted by Rain Man

Frankly, I think the best way is not to add up the whole career because it's a pain in the neck. You're just looking at differentials, so you should assume that the corporate drone job is zero and freeze it at that, then calculate the relative costs and benefits of the Peace Corps gig and see if it adds to more than zero or less than zero. That's the way they worded the problem.

I disagree, since there is not an interest rate or any discounting that has to be done, the math is trivial. Also, it is more intuitive and easy to understand to say "if you do this, you'll get this much money, and if you do that, you'll get that much money". Its how we usually evaluate economic decisions. Classifying benefits vs costs works too, but its a bit more needlessly esoteric.

[Saul Good]

Originally Posted by alnorth

I disagree, since there is not an interest rate or any discounting that has to be done, the math is trivial. Also, it is more intuitive and easy to understand to say "if you do this, you'll get this much money, and if you do that, you'll get that much money". Its how we usually evaluate economic decisions. Classifying benefits vs costs works too, but its a bit more needlessly esoteric.

I don't understand your reasoning here. I did the math in my head in about 30 seconds using a comparison. This way is akin to counting cards using a running count. Your way is like tracking every card.

I did the math this way.

-40k @ 3 yrs = -120k
+15k @ 3 yrs = -75k
+15k @ 3 yrs = -30k
-8k = -38k
-1k @ 30 yrs = -68k
+50k = -18k