James Investment Problem

Question

James has a job with a current salary of $42,000. He wants to earn a college degree that will take him 2 years to complete and it will cost $28,000 per year. He will go to school full time and will not be able to work. Upon graduation, James' new salary will be $56,000 per year. How many years will it take James to recover his investment?

a.
1.3 years
b.
2.5 years
c.
10 years
d.
20 years.

Answer 1

What is meant here is that James will lose the income from his current job, namely $42,000/year times 2 years = $84,000

The cost of his education will be $28,000/year times 2 years = $56,000

 

The sum of the lost income and two years of education expense will be $140,000

 

So, $140,000 ÷ $56,000/year = 2.5 years

 

option b