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Graduate School: Loan vs. Save Team 06 Joseph Ling Majd Abdoul-Hosn
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Scenario 1 Non-school related costs ignored Scope: 42 years Work and save for Graduate school Assumptions: Work for 2 years at $60,000 per year 4% raise (Prior to grad. school) Enroll for 2 years $70,000 per year after Grad. School 6% raise (After grad. school) Save 10% of salary every year
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Scenario 2 Take out a loan for graduate school Assumptions: Loan: Amount: $12,000 a year Interest: 4.7% in school 5.3% during repayment Compounded quarterly No repayment during school Enroll for 2 years $70,000 per year after grad. school 6% raise (After grad. school) Save 10% of salary every year
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Results Scenario’s match at 25 years Loan scenario will make more after this point
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Analysis Goal: Maximize Future Worth. Future Worth of Loan Scenario: $1,048,618.28 Future Worth of Save Scenario: $963,569.44 Future Worth of Loan is greater than Future Worth of Save Therefore, the Loan Scenario is a better choice.
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Sensitivity Analysis Low cost = $12000/yr. Match at 25 years. Mid. cost = $23000/yr. Match at 30 years. High cost = $40000/yr. Match at 26 years.
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Sensitivity Analysis Future worth of loan scenario decreases slower than future worth of save scenario.
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Sensitivity Analysis Starting salary before graduate School. Effect is minimal.
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Sensitivity Analysis Raise after graduate school between 5% and 7%. Save scenario splits farther from loan scenario as this % increases.
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Sensitivity Analysis Effect on Loan scenario is large. Every extra year spent in school increases the breakeven point by 8 to 10 years.
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Summary Which should you choose? Loan is more favorable even with: Lower percent raise. Higher school cost. Longer time spent in school Increased interest rate.
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Resources For school costs: Low cost http://www.csupomona.eduhttp://www.csupomona.edu Mid cost http://www.ucla.eduhttp://www.ucla.edu High cost http://www.columbia.eduhttp://www.columbia.edu Salaries: http://www.payscale.com Literary Resources : Cal Poly Pomona University Catalog 2003 – 2005 Essential of Engineering : Economic Analysis
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