Question

11) It is January 1, 2020. Sabita plans on working for 10 more vears and retiring on January 1, 2030 after collecting her last paycheck. She currently earns $65.000 per year in her accounting job, which is always paid at the end of the year. She is considering a one year intensive MBA program that would start immediately. It would cost $23,000 up front, and she'd have to miss out on work for a year. However, upon completion, her salary would increase to $71,000 per year. Her discount rate is 8% per year. Should she enroll in the MBA program? [14 pts.] 12) Aron from Guatemala is considering moving to Mexico. He makes the equivalent of $9,000 per year in Guatemala, paid at the end of the year. He estimates that per year in Mexico, also paid at the end of the year. However, if he moves, he'll incur $4,000 of direct moving costs immediately, plus a chronic psychic cost of roughly $2,500 per year due to missing his family (we can think of this as occurring at the end of each year as well). Aron plans on working for 40 more years. If his discount rate is 3%, should he move? (14 pts.)

Answer 1

11

Initial cost = 23000

Increase in earnings per year = 71000 - 65000 = 6000

MARR = 8%

NPW of MBA = -23000 + 6000 * (P/A, 8%,9)*(P/F, 8%,1)

= -23000 + 6000 * 6.246888 * 0.925926

= 11704.93

As the NPW of MBA is positive, he should do MBA

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