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Date Posted: 10:40:45 05/04/00 Thu
Author: Chris Evans
Subject: Re: Exam #1, Question 20
In reply to: Ed Hill 's message, "Exam #1, Question 20" on 07:39:30 05/04/00 Thu

> I have approached this tuition problem many ways and
> find no way to arrive at the answer of 'b. pay two
> years tuition'. Please show me.

I was able to solve this by doing the NPV for a series of cash flows for each choice and 'b' was the lowest. I think the wording of the question may be a bit misleading.
I read "pay one year tuition" to mean that you would pay one year of tuition, $3,000, at the beginning of each year for four years.
"Pay two years of tuition" to mean that you pay $5,500 today for years 1 and 2, and then pay $5,500 at the beginning of the third year for years 3 and 4.
"Pay three years tuition" to mean that you pay $8,100 today for years 1, 2 and 3, and then pay $3000 for the fourth year at the beginning of the fourth year.
And, finally, "pay four years" is simply the $10,400.
If you take the NPV of these cash flows, the second option should be the lowest.

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