1. Graduate School: Loan vs. Save Team 06 Joseph Ling Majd Abdoul-Hosn

2. 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

3. 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

4. Results Scenario’s match at 25 years Loan scenario will make more after this point

5. 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.

6. 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.

7. Sensitivity Analysis Future worth of loan scenario decreases slower than future worth of save scenario.

8. Sensitivity Analysis Starting salary before graduate School. Effect is minimal.

9. Sensitivity Analysis Raise after graduate school between 5% and 7%. Save scenario splits farther from loan scenario as this % increases.

10. Sensitivity Analysis Effect on Loan scenario is large. Every extra year spent in school increases the breakeven point by 8 to 10 years.

11. 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.

12. 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