Faith and Hope Are 30-Year-Old Identical Twins

question 28

Essay

Faith and Hope are 30-year-old identical twins.The only difference between them is their credit score.Faith has a proven record of repaying debts.Faith can borrow money at 4.5 percent.Hope has often missed debt payments.Hope can borrow at 8.5 percent.
They are considering enrolling in an evening MBA program.They plan on completing the program in two years.Assume the annual tuition is $16,000 for both years.They also anticipate that the nonmonetary costs of obtaining an MBA will be $40,000 per year.The twins anticipate that after graduation in two years,their earnings will be $10,000 per year higher until they retire at age 62.Should Faith enroll in the evening MBA program? Should Hope enroll in the evening MBA program?

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Definitions:

Discount on Bonds Payable

The difference between a bond's face value and its selling price when it is sold for less than its face value.

Contra Liability

An account that offsets a liability account on a company's balance sheet, such as discounts on bonds payable, which reduce the total amount of bonds payable.

Liability

An obligation of an entity arising from past transactions or events, the settlement of which may result in the transfer or use of assets, provision of services, or other yielding of economic benefits in the future.

Par Value

The face value of a bond or stock as stated by the issuing company.