Question

work 3.pdf X + ork 3.pdf?target=4df5354f-43de-4868-bae8-6d46f03c0f7d 1. Stephen Owsu is deciding whether he should get into the MBA program at a state university or not. The tuition and books for this program will cost him $60,000. If he starts the MBA program, he has to give up his current position as a financial advisor at Edward Jones which pays him $42,000 a year (after tax). On average, an MBA graduates will make an extra $25.000 per year over a business career of 40 years. Stephen find his oportuity cost of capital to be 5%. Given this scenario, find the NET PRESENT VALUE of getting the MBA degree and discuss whether this is agood decision to take or not Also, think about other different factors that could affect this decision but do not factor in the NPV measure.

Answer 1

		Initial Cost
		Cost of MBA program	$60,000
		Opportunity cost of giving up current earning	$42,000
	I	Total Initial Cost	$102,000
		Incremental Cash Flows:
	Rate	Discount Rate=Opportunity cost of capital	5%
	Nper	Number of years	40
	Pmt	Incremental Earning	$25,000
	PV	Present Value of incremental cash flow	$428,977	(Using PV function of excel with Rate=5%, Nper=40, Pmt=-25000)
	NPV=PV-I	Net Present Value	$326,977
		NPV of MBA decision	$326,977
		Other Factors:
		Affordability
		Whether amount needs to be borrowed and cost of loan
		Social acceptance of MBA
		Increased Job satisfaction and self esteem
				111 - X f =PV(18,19,-110) F G C D E H _ I K L M N O P Initial Cost Cost of MBA program Opportunity cost of giving up current earning Total Initial Cost $60,000 $42,000 $102,000 Rate Nper Pmt PV Incremental Cash Flows: Discount Rate=Opportunity cost of capital Number of years Incremental Earning Present Value of incremental cash flow 5% 40 $25,000 $428,977 | | (Using PV function of excel with Rate=5%, Nper 40, Pmt=-25000)