Taylor and Charlie currently live in New Orleans. Taylor is currently making $60,000 per year, and Charlie is currently making $40,000 per year. Let’s assume that both live for four periods, and the discount rate is 13%. (a) Calculate Taylor and Charlie’s present value if they stay in New Orleans. (b) Now, let’s assume both have been offered a new job in Denver. Taylor’s new offer is $75,000 a year, and Charlie’s new offer is $80,000 per year. Taylor has estimated a moving cost of $60,000, and Charlie has estimated a moving cost of $100,000. Calculate their new present values if they were to move to Denver. (c) Would Taylor move if single? Would Charlie move if single? Would they move as a married couple? Explain your reasoning.
Taylor and Charlie currently live in New Orleans. Taylor is currently making $60,000 per year, and
Charlie is currently making $40,000 per year. Let’s assume that both live for four periods, and the
discount rate is 13%.
(a) Calculate Taylor and Charlie’s
(b) Now, let’s assume both have been offered a new job in Denver. Taylor’s new offer is $75,000
a year, and Charlie’s new offer is $80,000 per year. Taylor has estimated a moving cost of
$60,000, and Charlie has estimated a moving cost of $100,000. Calculate their new present
values if they were to move to Denver.
(c) Would Taylor move if single? Would Charlie move if single? Would they move as a married
couple? Explain your reasoning.
(d) Who is the tied stayer? Who is the tied mover? Explain your reasoning.
(e) Now, let’s assume both Taylor and Charlie live for infinite periods. Calculate their present
values in each city with this new information, but do not include moving costs this time.
(f) Suppose Taylor and Charlie don’t want to take these jobs. Based on your answers in part e,
how big does each person’s moving cost need to be to ensure that they wouldn’t move? For
simplicity, assume they are each making this decision as if they were single. Hint: You should
get an inequality.
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