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A student is trying to determine if an MBA makes sense for his career. He is...

A student is trying to determine if an MBA makes sense for his career. He is considering two options for his life.

The first option is to attend a school for his MBA for the next three years. The MBA will cost $41,095.00 per year. After school is over, he will make $79,662.00 per year. He expects his salary to grow at 4.00% a year for 29.00 years after the MBA.

The second option is to stay in his current job. He currently makes $60,601.00 per year. If he does not get an MBA, he expects his salary to grow at 3.00% for the next 32.00 years.

The student can earn 8.00% per year on his investments. For simplicity, let’s assume all cash flows are at the end of the period (including MBA tuition).

Should you pursue your MBA? (Yes or No)

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Homework Answers

Answer #1

If MBA is done.

Present Value of Salary =

r = 0.08

n = 29 years

=

= $1324944.11

Present Value of Cost of MBA = Annual Cost * PVAF (3 years, 8%)

=41095 * 2.57709698721

= 105905.80

Net Present Value = $1324944.11 - 105905.80 = 1219038.31

Job continued

Present Value of Salary =

r = 0.08

g = 0.03

n = 32 years

=

= 946106.25

Present Value is more when he does MBA.

MBA should be done.

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