George works at a job where he gets paid Rs 10 lakh/ year with an annual raise of Rs 1 lakh. He wants to quit his job and go for higher studies which would cost him Rs 15 lakhs in student loans and it would take 2 years to complete. Assuming he gets a new job after completing his higher studies, what must be his minimum average salary at the new job so that in three years he would be better off financially than he would be if he hadn't quit the job at all?
George works at a job where he gets paid Rs 10 lakh/ year with an annual raise of Rs 1 lakh. He wants to quit his job and go for higher studies which would cost him Rs 15 lakhs in student loans and it would take 2 years to complete. Assuming he gets a new job after completing his higher studies, what must be his minimum average salary at the new job so that in three years he would be better off financially than he would be if he hadn't quit the job at all?
The correct option is C Rs 25 lakhs/ year
The total economic costs of quitting the job must be covered by his new salary in three years.
If George continued in his old job, he would earn five years' salary which is the implicit cost.
Implicit cost = Rs 10 lakh + Rs 11 lakh
+Rs 12 lakh + Rs 13 lakh + Rs 14 lakh
=Rs 60 lakhs
Explicit cost = Rs 15 lakhs which is his student loan
Total economic cost = Rs 75 lakhs
Hence, George should earn at least 75 lakhs in 3 years from his new job.
Hence, his average salary in the new job should be at least Rs 25 lakhs/year
Rs 25 lakhs/ year
The total economic costs of quitting the job must be covered by his new salary in three years.
If George continued in his old job, he would earn five years' salary which is the implicit cost.
Implicit cost = Rs 10 lakh + Rs 11 lakh
+Rs 12 lakh + Rs 13 lakh + Rs 14 lakh
=Rs 60 lakhs
Explicit cost = Rs 15 lakhs which is his student loan
Total economic cost = Rs 75 lakhs
Hence, George should earn at least 75 lakhs in 3 years from his new job.
Hence, his average salary in the new job should be at least Rs 25 lakhs/year
