Suppose a worker with an annual discount rate of 10 percent currently resides in Pennsylvania and is deciding weather to remain there or to move to Illinois. There are three work periods left in the life cycle. If the worker remains in Pennsylvania, he will earn 20,000 dollars per year in each of the three periods. If the worker moves to Illinois, he will earn 22,000 in each of the three periods. Assume that he get paid at the beginning of each period so that you don’t have to discount the first cash-flow.
What is the highest cost of migration that a worker is willing to incur and still make the move? Show your result (Hint: Use the concept of present value)
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