Question

A prospective MBA student earns $45,000 per year in her current job and expects that amount...

A prospective MBA student earns $45,000 per year in her current job and expects that amount to increase by 6% per year. She is considering leaving her job to attend business school for two years at a cost of $30,000 per year. She has been told that her starting salary after business school is likely to be $90,000 and that amount will increase by 16% per year. Consider a time horizon of 10 years, use a discount rate of 9%, and ignore all considerations not explicitly mentioned here. Assume all cash flows occur at the start of each year (i.e., immediate, one year from now, two years from now,..., nine years from now). Also assume that the choice can be implemented immediately so that for the MBA alternative the current year is the first year of business school. What is the net present value of the more attractive choice? Please round your answer to the nearest dollar.

Homework Answers

Answer #1

Calculation of Cash Flows from both option either to continue present job or do new one after doing MBA:

Cash Flow from present job grew by 6% like for Year 1 (45000 + 45000*6%) = 47,700 so on

Cash Flow from new alternative grew by 16% like for Year 3 (90000 + 90000*16%) = 104,400

Cash Flow from Current Job

Cash Flow from Alternative Option

0

45000

-30000

1

47700

-30000

2

50562

90000

3

53595.72

104400

4

56811.46

121104

5

60220.15

140480.64

6

63833.36

162957.54

7

67663.36

189030.74

8

71723.16

219275.66

9

76026.55

254359.77

Present Value of Current Job (Discount rate 9%) = $ 398,166

Present Value of New Alternative (Discount Rate 9%) = 703,674

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
A prospective MBA student earns $50,000 per year in her current job and expects that amount...
A prospective MBA student earns $50,000 per year in her current job and expects that amount to increase by 9% per year. She is considering leaving her job to attend business school for two years at a cost of $50,000 per year. She has been told that her starting salary after business school is likely to be $105,000 and that amount will increase by 10% per year. Consider a time horizon of 10 years, use a discount rate of 10%,...
A prospective MBA student earns $60,000 per year in her current job and expects that amount...
A prospective MBA student earns $60,000 per year in her current job and expects that amount to increase by 9% per year. She is considering leaving her job to attend business school for two years at a cost of $50,000 per year. She has been told that her starting salary after business school is likely to be $85,000 and that amount will increase by 13% per year. Consider a time horizon of 10 years, use a discount rate of 15%,...
A prospective MBA student earns $55,000 per year in her current job and expects that amount...
A prospective MBA student earns $55,000 per year in her current job and expects that amount to increase by 14% per year. She is considering leaving her job to attend business school for two years at a cost of $50,000 per year. She has been told that her starting salary after business school is likely to be $110,000 and that amount will increase by 15% per year. Consider a time horizon of 10 years, use a discount rate of 12%,...
A prospective MBA student earns $45,000 per year in her current job and expects that amount...
A prospective MBA student earns $45,000 per year in her current job and expects that amount to increase by 8% per year. She is considering leaving her job to attend business school for two years at a cost of $30,000 per year. She has been told that her starting salary after business school is likely to be $95,000 and that amount will increase by 14% per year. Consider a time horizon of 10 years, use a discount rate of 14%,...
Finance (Net Present Value): 1. A firm that purchases electricity from the local utility for $400,000...
Finance (Net Present Value): 1. A firm that purchases electricity from the local utility for $400,000 per year is considering installing a steam generator at a cost of $290,000. The cost of operating this generator would be $280,000 per year, and the generator will last for five years. If the firm buys the generator, it does not need to purchase any electricity from the local utility. The cost of capital is 15%. For the local utility option, consider five years...
Jodi is a successful lawyer. She earns $50,000 per year from her law job plus $5,000...
Jodi is a successful lawyer. She earns $50,000 per year from her law job plus $5,000 per year in rental income from a building she owns that is rented to a clothing store. Jodi also has $10,000 in a savings account that earns 10% interest, or $1,000 per year. One day, Jodi decides to leave her profession and open a bookstore in the building she owns. She withdraws the money from her savings account and uses it to purchase special...
Lydia currently earns £8,600 per year (same amount after income tax and national insurance) and Patrick,...
Lydia currently earns £8,600 per year (same amount after income tax and national insurance) and Patrick, £20,000 (£17,135.84 after tax and national insurance). If Lydia takes the full-time job (which involves changing role), her gross earnings will increase to £18,000 (£15,775.84 after tax and national insurance). Lydia also receives child benefit for Nina, equating to £1076.40 per year. Question: Using the concept of opportunity cost, identify two factors that might cause Lydia to have a much larger financial loss over...
Jamie is considering leaving her current job, which pays $75,000 per year, to start a new...
Jamie is considering leaving her current job, which pays $75,000 per year, to start a new company that develops applications for smartphones. Based on market research, she can sell about 50,000 units during the first year at a price of $4 per unit. With annual overhead costs and operating expenses amounting to $145,000, Jamie expects a profit margin of 20 percent. This margin is 5 percent larger than that of her largest competitor, Apps, Inc. a. If Jamie decides to...
Cathy Smith manages a photocopying establishment and earns $30,000 per year. She decides to leave her...
Cathy Smith manages a photocopying establishment and earns $30,000 per year. She decides to leave her current job and open and operate her own store. She invests $20,000 into the company to start her business, which she takes out of her savings account that was earning 5% interest per year. During her first year of operation she expects the following: Revenue from sales $110,000 Salaries to hired help $45,000 Supplies$15,000 Rent$12,000 Utilities$13,000 ----------------------------------------------------------- 1. Calculate expected explicit costs for year...
A consumer has nonhuman wealth equal to $100,000. She earns $40,000 this year and expects her...
A consumer has nonhuman wealth equal to $100,000. She earns $40,000 this year and expects her salary to increase by 5% in real terms each year for the following two years. She will then retire. The real interest rate is equal to 0% and is expected to remain at 0% in the future. Labor income is taxed at a rate of 25% This consumer's human wealth is $ (Round your response to the nearest whole number.) Her total wealth is...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT